It always starts the same way.
A trader drops $1,000 into a meme coin that’s blowing up on X. For a few days, it feels like they’ve cracked the code—their balance doubles, maybe triples, and the dream starts to take shape: pay off debt, quit the job, finally get ahead.
Then the chart turns. Within days, the coin tanks 50%, erasing most of the gains and all of the fantasy.
This isn’t just another story about crypto volatility. It’s a glimpse into the heart of the new speculation economy—where value isn’t built, it’s memed into existence. Where billion-dollar valuations can hinge on a mascot, a hashtag, or a tweet. And where psychology, not fundamentals, drives the market—and often wrecks it.
The FOMO Engine: Mechanics of the New Economy
In this new economy, the fear of missing out (FOMO) is the primary driver of capital. It’s an environment where the crowd’s movement becomes its own justification, a phenomenon behavioral scientists have long observed.
“Meme coins tap into our desire for excitement, quick wins, and belonging to a viral movement,” notes a recent analysis from the Digital Watch Observatory. It’s what behavioral finance expert Dr. Meir Statman calls the pursuit of “expressive and emotional benefits,” where the thrill of participation and social validation are as valuable as any utilitarian gain.
Social media platforms are the infrastructure. On X, Reddit, and TikTok, herd behavior is amplified into a market-moving force. This is social proof in action, the principle of influence where people adopt the actions of a crowd. Echo chambers form, skepticism is discouraged, and the hype becomes self-fulfilling. During Dogwifhat’s surge in May, X posts mentioning the coin soared, with a HypeAuditor analysis suggesting bots drove as much as 40% of the conversation, artificially inflating its perceived momentum.
This dynamic is supercharged by a lottery-ticket mindset. The low price per token—often fractions of a cent—makes the bet feel small and the potential upside astronomical. “It’s more like gambling,” Mac Onouha, a Lagos-based trader, previously shared For many, it’s not an investment; it’s a spin of the wheel in a global, 24/7 casino.
Anatomy of a Rally: The Case of Dogwifhat
Dogwifhat (WIF), a Solana-based token, perfectly illustrates these forces at play. Its market cap surged from $500 million to over $3.5 billion in the second quarter of 2025, driven by a listing on Binance and viral social media trends.
The coin’s rise wasn’t tied to a technical breakthrough. It was, as CoinDesk editor Daniel Kuhn puts it, made “‘real’ through community enthusiasm.” A mention by Elon Musk in mid-2024 provided an early spark, but the true fuel was the relentless, community-driven memetics.
But the fall was just as swift. After a 113% surge in May, the price crashed by over 50%, according to data from Brave New Coin, incinerating billions in speculative value. As trader Vic Laranja told Business Insider, the logic is simple and seductive: “‘You see a coin at $0.01 and think, ‘If it hits $1, I’m rich.’ It’s about timing the hype.”
The Unregulated Frontier: Rug Pulls and Risk
This new speculation economy operates on an unregulated frontier, making it fertile ground for fraud. One Forbes analysis estimated that 40% of meme coin projects function as pump-and-dump schemes, with another 30% being outright rug pulls.
Experts warn investors to look for key red flags:
- Anonymous Teams: “If you can’t find a LinkedIn profile, it’s a warning,” says Laranja. The pseudonymous nature of most meme coin founders means there is no accountability when things go wrong.
- Controlled Liquidity: Developers can trap funds or manipulate prices if liquidity isn’t transparently locked. Tools like DEXScreener are essential for verification, especially as one Elliptic report noted that manipulated liquidity was a factor in 70% of rug pulls in 2024.
- Hype Over Substance: Newer coins often lack even a basic whitepaper. “Coins like $TRUMP are driven by branding, not value,” notes one blockchain content writer, pointing to a lack of utility as a clear warning sign.
Regulators are circling. While most meme coins don’t qualify as securities, as they lack promises of future profits from a central enterprise, fraud laws still apply. This could lead to enforcement actions against the exchanges that list them.
Systemic Stakes: When Memes Reshape Capital Flows
The meme coin phenomenon poses broader risks than just individual losses. It represents a significant misallocation of capital. Haseeb Qureshi, managing partner at Dragonfly Capital, highlighted that in the first quarter of 2025 alone, over $8 billion flowed into meme coins. “Capital chasing 500% spikes isn’t funding AI or blockchain R&D,” Qureshi stated, noting that the speculative frenzy diverts resources from genuine innovation.
This volatility also erodes the credibility of the broader crypto market, deterring institutional adoption.
However, some see a silver lining. Ki Young Ju, CEO of CryptoQuant, compares meme coins to “archetypes of the collective unconscious,” suggesting their power lies in tapping into shared identity. This community momentum, he argues, could eventually be channeled into real utility, as seen with Shiba Inu’s Shibarium network or Dogecoin’s adoption for payments by brands like AMC Theatres.
ChainStreet’s Take: An Economy Built on Attention
Meme coins are the primary assets in a new speculation economy—one built on emotion and attention, not fundamentals. For investors, policymakers, and builders, one truth cuts through the noise: this isn’t value investing. It’s a wager on staying viral in a feed that never stops scrolling.
Experts advise allocating no more than a small, high-risk portion of a portfolio to these assets and performing deep due diligence on tokenomics and community health. But above all, they urge skepticism.
In an economy fueled by hype, assets are dangerously seductive, and capital is only as safe as the next viral trend.
