The meme coin scam and why to avoid them: “99 percent of them go to zero”

For those who have been observing the world of cryptocurrencies without actively trading digital assets, it may seem like reports of scams—often referred to as “rug pulls”—are becoming more frequent. But what exactly are these scams?

How can you spot one? And why should you avoid them at all costs?

How to spot a meme coin

Molly White, a cryptocurrency researcher, spoke with PBS to explain what a “meme coin” is and how it differs from more established cryptocurrencies like Bitcoin and Ether.

“Meme coins are crypto assets themed around a specific idea or sometimes a person,” said White. PBS’ Paul Solman specifically was curious about popular currencies promoted by Donald Trump and his close associate billionaire Elon Musk: Trump Coin and Dogecoin.

Crypto commentator Vic Laranja, also interviewed by Solman, estimated that there are around five million meme coins on the market, with “99 percent of them” eventually becoming worthless. And, though celebrities promote these coins, they say publically that they aren’t great financial investments.

Unlike currencies like Bitcoin, White noted that meme coins are usually not launched by a business. “There’s no sort of greater purpose, but they are used as vehicles for speculation.” Investing in crypto can be risky when you don’t know much about the way the deregulated industry works. Make sure to do your research before you purchase a coin, thinking that it will grow in value—something experts warn meme-coins won’t do.

Trump Coin’s rise and fall

Donald Trump launched Trump Coin on January 17, just days before his inauguration. A total of one billion units were created, with 200 million made available to the public. The remaining 800 million coins were held by companies owned by Trump.

By January 19, one Trump Coin was trading at $75. Today, it sells for less than $11.

While Trump’s holdings were not sold en masse, the sale of the meme coin still generated more than $350 million, according to calculations reported by the Financial Times.

Allegations that the launch of Trump Coin was a “grift” are coming from Democratic leaders, like Connecticut Senator Chris Murphy. In a video posted on social media, Murphy argued that it was a historic example of “White House corruption.” Murphy notes that while many of the president’s supporters lost massive amounts of money because they might have bought when it was reaching its peak value, Trump has made millions in transaction fees. Additionally, his reserve was all purchased when the coin was essentially valueless, meaning he is unlikely to lose much of his initial investment.

What Is a Crypto Rug Pull?

Coinbase, a popular cryptocurrency trading platform, describes a rug pull as “a scenario in the cryptocurrency world where developers abandon a project after raising assets, leaving participants with worthless tokens.”

Increasingly, celebrities and political leaders have been accused of engaging in these practices—encouraging their followers to buy cryptocurrency, only to quickly sell their massive holdings when prices peak. Once the rug puller cashes out, those left holding the coin may see their initial investment plummet.

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