Memecoins: collecting and speculation

The balance of memecoin and gold

The objective of this note is to analyze the phenomenon of memecoins and the recent fall of $Libra, employing a model that represents them as collectible assets. The SEC, the entity in charge of regulating securities in the United States, has recently adopted this classification. This has led me to the idea of representing them through a model based on economic studies that analyze this type of asset.

What are memecoins?

Memecoins are cryptocurrencies that emerge primarily as a joke or a cultural phenomenon based on internet memes, rather than having a solid technical or economic purpose. Their popularity is often driven by online communities, social media, and the endorsement of influencers, rather than by their practical usefulness or technological underpinnings. Some prominent examples are Dogecoin (DOGE), inspired by the Shiba Inu dog meme, and Shiba Inu (SHIB), which follows the same theme.

Fall of a memecoin

The $LIBRA cryptocurrency was launched on February 14, 2025, by the company Kelsier Ventures. Three minutes after its creation, Argentine President Javier Milei promoted it on his social networks, which caused a dizzying increase in its value, going from $0.000001 to $5.20 in just 40 minutes. However, the founders, who owned 70% of the total supply, abruptly sold their holdings, causing an 85% drop in price. This event, known as a rug pull, generated significant losses for approximately 74,000 investors, while the founders made profits of close to $87 million.

Memecoins as collectible assets

The following table is presented below:

Comparison: Memecoins vs. Traditional Financial Assets

Source: Own elaboration

Simulating the behavior of memecoins: the case of $LIBRA

Collectible assets are goods acquired primarily for their subjective value, scarcity, and demand within a specific market, rather than for their ability to generate cash flows or financial utility. Their value usually depends on factors such as rarity, cultural or historical interest, the collector community, and speculation.

The United States federal securities regulator (SEC) has recently noted that memecoins have "limited or no functionality," indicating that they do not meet the criteria for collective investment based on the expectation of profits derived from third-party effort. As a result, they would fall outside the SEC's jurisdiction and would resemble collectibles rather than financial securities. Consequently, many memecoins are acquired as collector's items or for speculative purposes, without being backed by an underlying project.

Based on the SEC's definition and studies on collectible assets, such as the work by Boland and Thornton (2014), I modeled the memecoin market using an Agent-Based Model (ABM). In this approach, the interaction of multiple autonomous agents that follow specific rules of behavior is simulated.

In this market, participants or agents can be classified into three main types, each with a different behavior according to their motivations and investment strategies. These agents are:

1. Professional investors
2. Enthusiasts
3. Whales

1. Professional Investors

Professional investors are those who analyze the market rationally and base their decisions on long-term value expectations. Unlike other participants, they do not buy memecoins for emotional or cultural reasons, but with a purely financial goal. Their behavior is governed by price expectations, i.e., their best estimate of how much the asset should be worth in the future based on historical data, liquidity, and market movements. When they consider a memecoin to be overvalued, they sell for a profit. Their participation in the market is generally limited because memecoins do not meet traditional investment criteria and their high risk leads them to prefer more stable opportunities.

2. Enthusiasts

Enthusiasts are the driving force behind the memecoin market. Unlike professional investors, their motivation is not solely financial; they also seek social recognition, to be part of a community, or simply to participate in the trend of the moment. Enthusiast behavior is driven by three key factors in the model:

• Hype: Refers to the level of enthusiasm and attention a memecoin receives on social media, media outlets, and online communities.
• FOMO (Fear of Missing Out): The fear of missing an investment opportunity that could generate great profits.
• Nostalgia: Represents the emotional connection some people have with certain memes, events, or online communities.

The behavior of enthusiasts allows the SEC's claim that memecoins are collectible goods to be mathematically formulated, through the parameter η (the pleasure premium). This parameter captures the non-financial value that enthusiasts (or collectors) assign to an asset with no real basis (such as a memecoin).

This is reflected in the following equation:

$$\eta = \alpha \cdot hype\_level + \beta \cdot FOMO\_effect + \gamma \cdot nostalgia\_factor$$

3. Whales

Whales are large investors with enough capital to influence market direction. Unlike enthusiasts, they do not buy memecoins out of excitement, but as part of a price manipulation strategy. They often take advantage of irrational market behavior to obtain short-term profits.

Final Results (USD): Model Simulation

Source: Own elaboration

Real Data of $Libra

Source: Own elaboration

Comparative Results: Simulation vs Real $Libra Data

1. Total Losses

The simulated $251M matches the real data quite well. In addition, the breakdown of losses is proportional to the size of the investor groups:

Group Loss Report: Simulation

Source: Own elaboration

2. Creator Earnings

The creators' simulated earnings amount to $85M. Comparing with the actual estimated data, which varies between $70M and $100M, it is concluded that the simulation offers a reasonably accurate estimate of profits in this group.

3. Enthusiast Losses

The loss of enthusiasts, according to the simulation model, exceeds 201 million dollars, which represents a good approximation of the real data.

Conclusion

The model confirms that the memecoin market is dominated by social and emotional factors, rather than traditional economic principles based on fundamental value or cash flows. The three types of agents modeled reflect the reality of these markets. Comparative analysis shows that the simulation is a representation of the real data of a memecoin, and the correspondence in total losses and the distribution of losses and gains reinforces the validity of the model used. Investing in memecoins is like buying an ephemeral work of art: its value lies not in its materials or utility, but in collective perception. However, unlike traditional art, these assets can lose almost all of their value in a matter of minutes. The simulation confirms that these markets do not follow rational economic principles, but emotional and social dynamics that can generate huge losses for enthusiasts and large gains for a few.