The launch of the new spot Bitcoin (BTC +0.40%) ETFs last January was one of the most successful ETF product launches ever. In a span of just 12 months, these spot Bitcoin ETFs attracted more than $100 billion from investors, and have become one of the most popular ways for individuals, hedge funds, and institutional investors to get exposure to the crypto asset class.
So it's completely understandable why fund managers have been inundating the SEC with applications for new spot crypto ETFs, including some that feature meme coins. As a result, it's becoming increasingly likely that a meme coin ETF will debut in 2025. Maybe you will be tempted to invest, but here are several reasons why that would be a colossal mistake.
The false promise of triple-digit returns
Let's be honest here. The primary reason why many people would be tempted to invest in a meme coin ETF is to get access to triple-digit returns. Meme coins are known for their potential to skyrocket in value, and indeed, if you look at how some of these meme coins perform during very short periods of time, it's hard not to be impressed.
Image source: Getty Images.
But here's the thing: these returns are rarely able to be replicated over a long-term time horizon. Meme coins, by their very nature, are meant to be ephemeral and transient. They attempt to capitalize on new viral trends, and are not meant to be long-term investments.
Moreover, since viral trends come into and out of circulation very quickly, it's almost impossible to predict which meme coins are going to perform well at any point in time. One quarter, it might be dog-themed meme coins. The next quarter, it might be cat-themed or frog-themed meme coins.
CRYPTO: DOGE
Key Data Points
As a cautionary tale, consider the case of Dogecoin (DOGE +3.36%). After a brief, momentary spike in value during the crypto market bull market rally in 2020-21, it has been a huge disappointment. This year, for example, Dogecoin is down 20% -- and that's even with "DOGE" making news headlines literally every single day. So, even though some analysts now give a Dogecoin ETF a 74% chance of being approved this year, this is one ETF that I would definitely avoid.
The hidden risks of meme coins
While ETFs are highly regulated, meme coins are not. And that creates the potential for a lot of bad behavior in the crypto market. Many meme coins, unfortunately, are pump-and-dump schemes. Some are outright scams. And even meme coins launched by celebrities and high-profile public figures can collapse in value overnight, leading to a lot of awkward questions later.
Making matters even more difficult, there are literally thousands of new meme coins being created every day, so it's almost impossible to vet all of them. It's really easy to start a new cryptocurrency, but much harder to come up with a genuinely valuable new coin.
If you're an optimist, this is a problem that the ETF application process should solve. In theory, only the safest, most trusted, and most liquid meme coins will even be considered for an ETF. And only the best of the best will ever get a seal of approval from the SEC.
But remember what I told you about meme coins being ephemeral and transient? By the time a meme coin ETF finally starts trading, it will be almost impossible to make any serious money from it. The moment of virality will likely have already passed on Day One, and it will be too late for investors who blinked and missed it.
We're already seeing a version of this phenomenon now, as meme coins migrate from decentralized crypto exchanges to centralized crypto exchanges such as Coinbase Global. By the time this process happens, investors have already missed out on a tremendous amount of upside.
PEPE / TetherUS chart by TradingView
Just take a look at this chart for Pepe (PEPE +7.06%), the popular frog-themed meme coin with a $4 billion market cap. The coin launched in mid-2023, but Coinbase only listed this meme coin for trading in November of last year. By that time, it was already too late. You would have already missed out on Pepe's remarkable upward trajectory that made it so popular with investors. If a Pepe-based ETF somehow gets approved this year, I wouldn't touch it with a ten-foot pole.
99% of people lose money with meme coins
As a result, is it really any surprise that 99% of people lose money with meme coins? It's hard enough to pick the right meme coin. But you also have to get in early enough to make any real money. And you have to get out fast enough to avoid being turned into exit liquidity by unscrupulous insiders.
Thus, if you are hoping that a dog-themed meme coin ETF will turn you into a crypto millionaire, you might be barking up the wrong tree. Investing in meme coins is speculative enough, and investing in meme coin ETFs would only compound those problems.
