What Are Meme Coins? Uses and Risks to Know

Meme coins, a form of cryptocurrency, are considered by some to be modern-day collectibles, and a few, like Dogecoin, have created frenzies similar to the Beanie Babies craze of the 1990s. From young children to their parents, people hoarded the cute, inexpensive plush toys in hopes their resale value would someday increase. However, these toys had no real investment value outside certain collectors' circles, and the craze faded by the early 2000s.

Meme coins are a 21st-century spin on the same concept. Whereas bitcoin and other cryptocurrencies may have been created with thought-out structures like limited supply, meme coins typically are founded with less lofty goals. They're usually established quickly as satirical jokes, riffing on popular internet trends that might entice prospective buyers. Meme coins are generally intended as a potentially entertaining way to engage with the crypto community. Sometimes they're get-rich-quick schemes or scams, though. Occasionally, a meme coin will be so popular its value increases dramatically. But its value can decline just as quickly.

That can make what was once a joke seem like a potential investment, but because it can decline so fast, they can be pretty risky to any investor regardless of their risk tolerance. That's why it's important to know how meme coins not only work, but also the inherent risks involved.

Meme coins are typically created on top of an existing blockchain, but they can have their own too. For example, the Pudgy Penguins meme coin introduced in late 2024 was built on the Solana blockchain, while Dogecoin operates on its own independent blockchain. Their value rises and falls with demand, which often comes from internet users who are into their core joke, and in theory, they can be exchanged for goods and services like other currency. However, just because demand might be driving their price up or down, it doesn't mean they're a sound investment strategy. Demand can fade with changing trends as in the Beanie Babies case.

Some people buying meme coins care less about intrinsic value because they're buying them for novelty, as a collectible, and not for investment purposes. For example, the issuer of meme coins based on political personalities said that the coins are to be considered expressions of support rather than securities or investments. Not everyone understands that, and many people have faced steep losses.

As with traditional currency, meme coins and other cryptocurrencies could become valuable because people treat them as valuable. (When this happens, the currency is known as a fiat currency, which, at its most basic level, is anything people accept as a medium of exchange. Ironically, concern about traditional currencies being fiat currencies without intrinsic value was one reason bitcoin received so much interest.)

While most meme coins are novelties, a handful of them may have perceived value. This is usually because the coin becomes so popular that people use it the same way as traditional cryptocurrencies, such as bitcoin or ether. Dogecoin, one of the first meme coins, was created as a joke by two programmers interested in combining the mania for bitcoin with the mania for internet memes featuring Shiba Inu dogs. Unlike many later meme coins, Dogecoin was built on its own blockchain, giving it potential use cases, and a handful of crypto evangelists, including Elon Musk.

Users of online communities and social media platforms like Discord, Reddit, and X (formerly known as Twitter) often drive early interest in meme coins, though some celebrities have dipped their toes in too. The more popular meme coins are traded on crypto exchanges, and some traders think of these cheaply priced coins as a low-stakes way to practice their trading and learn more about crypto assets first-hand. After all, meme coins have high volatility, which can cut both ways and has led to losses. That volatility can cut the other way and lead to losses, though, which is why regulators have been cautious about how they characterize meme coins.

The U.S. Securities and Exchange Commission (SEC) made its view on regulating meme coins pretty clear in February 2025 when the agency published a memo about how federal securities law might apply to the crypto asset. It doesn't.

That's largely because the SEC believes meme coins are "akin to collectables. Meme coins also typically have limited or no use or functionality." In short, meme coins are a joke that people can speculate on— not a security. Unlike a security, meme coins don't "generate a yield or convey rights to future income, profits, or assets of a business," the SEC wrote.

There's no investment in an enterprise, and people who participate aren't doing it with "reasonable expectations of profits," the SEC noted. Importantly, neither are the people who are promoting meme coins—though that doesn't mean many people who have promoted them haven't profited by collecting cash from the sale of new coins, or from latecomers who buy into the fad, only to discover that everyone else has been selling and they're left with a potential loss.

While the SEC noted that the offering and sale of meme coins may not be subject to federal securities laws, the agency added that fraud related to offering and selling meme coins might be prosecuted by other federal or state agencies.

Even so, it makes "investing" in meme coins a highly risky, volatile, and unregulated bet.

The primary risk of buying a meme coin is exchanging an asset of value (like dollars) for something that has no clear long-term investment value, which is the case with many collectibles. The buyer understands the risks and potential losses associated with trading meme coins, and they may want to own the coin anyway.

On occasion, meme coins have increased in value. The downside is that an increase in a meme coin's value raises the risk of a rug pull, the crypto ecosystem's version of a pump-and-dump scheme: Some influencers talk up a new coin in online groups or garner celebrity endorsements to encourage people to buy the coin, bidding up the price. Then, they or others flood the market by selling their holdings, driving down the price for those who continue to hold the currency. In the past, regulators have gone after pump-and-dump schemes, especially those tied to celebrity endorsements.

Finally, meme coins, like other cryptocurrencies, have been the targets of theft and scams, and not just pump-and-dump schemes. Hackers who find their way into crypto wallets take all the currencies in them, whether they have significant value or not. It's important to protect oneself by keeping passwords safe, using two-factor authentication, and remembering that if something sounds too good to be true, it probably is. Other noteworthy risks outside of fraudulent activities could include, but are not limited to, tax considerations, technology risk, changes in the regulatory landscape, or liquidity limitations.

Meme coins can be a fun part of the cryptocurrency ecosystem, but they function more like a collectible than a long-term investment. Some traders buy them simply because they want to own them, while others do it speculatively. It's a rapidly growing industry, and different digital tokens—or innovative technologies—may take on uses that we can't even imagine right now.