Binance Research report exposes high volatility in meme coin market

A recent report from Binance Research, released on November 4, 2024, reveals significant instability in the meme coin market.

In the report titled “Understanding the Rise of Memecoins,” led by Binance Macro Researcher Josh Wong, 97% of the meme coins have been found to have tremendous declines in trading volume. This research reveals that meme coins are very fragile and susceptible to market manipulation, presenting a possibility of risk for investors.

Wong noted the short-lived nature of these tokens, stating, “The majority of memecoins born from the frenzy of 2023 and 2024 have proven to be fleeting. A full 97% have already died, reaching near-zero trading volumes.” Most of these meme coins gained traction and then lost value within a short time, especially when such gains are made based on speculative trading activities that target retail investors.

Rapid growth but limited longevity

The report also gives an insight into the growth of meme coins, which are more than 75% of the coins launched in the last year. In comparison to Altcoins, meme coins are largely informed by social media trends and increased access to encourage the formation of communities and catch the eye of the market. 

Wong explained, “The time-to-convert for a meme coin consumer is much shorter than that for a technology-focused altcoin investor, leading to a rapid propagation of their narratives.”

Due to this environment, capital has flown to meme coins, but only a few of these coins can sustain their value in the long run. For instance, the meme coin WIF hit a $1 billion market cap in 104 days, while Shiba Inu (SHIB) achieved this in 279 days, and DOGE, which is a decade-old meme coin, took eight years. DOGE and SHIB are among the few coins that belong to a market that mostly comprises of temporary tokens.

In a report, Binance Research states that meme coins remain risky assets, even as they gain traction. Because they mostly depend on public opinion, coupled with the fact that they have little intrinsic value, they are highly susceptible to price manipulation. The report reveals that the meme coin market is prone to pump-and-dump scams, which is a way of exploiting the starters while making profits for the early and inside investors.

Although meme coins are accessible and transparent, the latter has not always protected investors from deceitful behavior. According to the report, with every DOGE or SHIB that demonstrates longevity, hundreds of meme coins become defunct, which poses a risk to investors.

However, Binance Research points out that meme coins are important in the crypto market as they help gather communities worldwide and spread stories that appeal to retail investors. The report suggests that this community aspect may help identify the best practices in fair token launches and decentralized community development within the blockchain industry.