The $TRUMP meme crypto coin web page is displayed on a mobile screen in this photo illustration in Brussels, Belgium. Photo: AFP
A cryptocurrency expert worries that memecoins will change the crypto world as we know it, and not in a good way
Officially, they are called 'memecoins,' but Kōura Wealth founder Rupert Carlyon says the crypto world has another name for them: 'shitcoins'.
In digital finance, that phrase is used for tokens that have no true value - in essence, a money-grab.
A few days before his inauguration, US President Donald Trump launched his own coin, $Trump. Shortly after, $Melania launched.
So far, Trump's coin has dropped in value, down 70 percent from its peak, meaning some investors have lost big. For critics, its further evidence of memecoin's inherent volatility.
Put simply, a memecoin is a type of crypto currency based on a meme - a funny picture, video or text that's shared online, usually on social media.
The first one, 'Dogecoin', was created in 2013 and is based on the picture of a Shiba Inu dog which went viral around the same time.
Carlyon says it was created entirely as a bit of fun to mock Bitcoin.
"[Dogecoin founders] created it and went, 'you know what, we're not even going to pretend it does anything useful, we're not going to pretend that it's anything real, and we're going to name it after one of the most popular memes on the internet, the Doge'," says Carlyon.
What started as a joke is now a thriving currency - but despite the fact that Carlyon's investment scheme in the only one in New Zealand with a Bitcoin fund, he doesn't trust memecoin.
"Late last year we actually changed the name of our fund from a crypto-currency fund to a Bitcoin fund, reflecting the fact that in our view Bitcoin stands out on its own as something that we think is long-term and sustainable."
Carlyon says he struggles to see a valid reason for investing in it.
"I just can't come up with an investment case for why I would invest in a memecoin when I have the likes of Doge, for example, where the creators have openly talked about that it was built as a parody."
In this episode of The Detail, Carlyon explains how anyone can create a memecoin by coding it onto a blockchain, the online system that stores and enables crypto currency transactions, as well as the way they are marketed.
Carlyon says the key is to gain as much momentum and hype as possible, because that is what incentivises people to buy, which in turn increases the coin's value.
But because the coin operates on a decentralised network, it's an area rife with scams like 'pump-and-dump' schemes, where creators spread false or misleading information to create high demand that will "pump" up the price in the coin, before "dumping" their own shares at the inflated price and leaving investors high and dry.
Carlyon says these cases show the damaging effect memecoins can have on the reputation of cryptocurrency as a reliable investment.
"I'm a traditionalist, my view is... they should be regulated, we have to figure out a way to clean it up," he says.
But cryptocurrency was created out of people's desire to have a financial system that wasn't regulated by banks or governments, so 'cleaning it up' is at odds with its initial purpose.
"It's a really hard one because as an industry it's now getting so big, and as it gets closer to mainstream, regulation has to come, and regulation will come. One of my big fears of where we're going right now is that as the crypto fundamentalists regain control, we end up moving back into a world of scams and a whole lot of other things which is going to reduce public confidence in the sector," Carlyon says.
He doesn't advise people to invest in memecoin, but for those who do want to, his advice is to be "very, very, very careful".
"Only invest what you're prepared to lose, and before you invest, make sure you do your research, understand the people that are behind the project, is it real, what are they trying to achieve, why do you think it's going to go up, why do you think it might fall over?"
"Like any investment, you shouldn't just go into it because you've seen something cool on social media, you need to do the work and if you're unable or unwilling to do the work, you're probably better off staying away from it."
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