The latest craze in cryptocurrency is the release of the $TRUMP and $MELANIA meme coins. Immediately upon issuance, the cryptocurrency coins surged in value, turning worthless 0s and 1s of computer code into tens of billions of dollars.
Many in the financial media, alongside crypto devotees, claim these meme coins, and others like Fart Coin, DOGE Coin, and the aptly named Shit Coin, create wealth. While they have made sizable profits for countless coin issuers and traders, the amount of dollars in the financial system remains unchanged. The coins do not create wealth; they transfer it from buyers to sellers.
More importantly and not advertised by the pro-crypto bandwagon, our potential national wealth suffers as the valuations of most cryptocurrencies grow. Instead of focusing on the glamor of instant millionaires that meme coins create, we take a different direction: their impact on the economy and the citizens’ aggregate wealth.
Before expanding on those thoughts, we share a quote from John Authers of Bloomberg concerning meme coins:
The highly volatile tokens have no underlying assets to back up their value and no obvious practical purpose.
Crypto and Meme Coin Context
We start this discussion with some context to the amount of capital tied up in meme coins and the broader cryptocurrency markets.
The table below, courtesy of CoinGecko, shows the ten largest cryptocurrencies by market cap. The second graph from TradingView estimates the total value of all cryptocurrencies is roughly $3.5 trillion.
The following table, courtesy of CoinGecko, shows the top meme coins and their respective market caps. They sum up to nearly $90 billion. Furthermore, CoinGecko estimates the total value of all meme coins as of January 21, 2025, was $123 billion.
Types Of Cryptocurrencies
Cryptocurrencies fall into four broad categories. Some cryptocurrencies, such as meme coins, have absolutely no value. However, some do serve a purpose. To help better appreciate the differences among these currencies, we share the following descriptions courtesy of the Corporate Finance Institute:
Payment- Bitcoin, perhaps the most famous cryptocurrency, was the first successful example of a digital payment cryptocurrency. The purpose of a payment cryptocurrency, as the name implies, is not only as a medium of exchange but also as a purely peer-to-peer electronic cash to facilitate transactions.
Tokens– are any cryptographic asset that runs on top of another blockchain. Ethereum network was the first to incorporate the concept of allowing other crypto assets to piggyback on its blockchain.
Stablecoins- are designed to provide a store of value. They maintain their value because while they are built on a blockchain, this type of cryptocurrency can be exchanged for one or more fiat currencies. So stablecoins are actually pegged to a physical currency, most commonly the US dollar or the Euro.
Central Bank Digital Currencies (CBDC)– CBDCs are issued by central banks in token form or with an electronic record associated with the currency and pegged to the domestic currency of the issuing country or region.
Meme coins are a subset of the token category. These coins are often inspired by jokes, social media fads, or, as the name implies, memes.
Wikipedia defines meme coins as follows:
A meme coin is a cryptocurrency that originated from an Internet meme or has some other humorous characteristic. The term is sometimes used interchangeably with the term shitcoin, which typically refers to a cryptocurrency with little to no value, authenticity, or utility.
Meme Coins Produce Negative Value
As we wrote in the prior section and Wikipedia affirms, meme coins have zero intrinsic value and serve zero purpose. Assigning they have zero value is complimentary. Meme coins reduce wealth from society in aggregate. We think they have negative inherent value.
Meme coins and all other forms of cryptocurrency do not create dollars. Dollars are transferred into the crypto markets to buy crypto assets and sometimes transferred out upon selling. As noted earlier, about $3.5 trillion is currently in the crypto markets.
The capital or “wealth” tied up in meme coins is money not being used for other purposes. Those purposes entail many things, from gambling or vacations to productive investment or charity and billions of other productive and unproductive uses.
Less Capital For Productive Ventures
We have railed on the economy’s rising debt-to-GDP ratio multiple times, proving that aggregate debt has been unproductive. That is not debatable. If debt in aggregate were productive, the ratio would decline, regardless of how much debt was employed.
For example, the graph below shows the dollar amount of GDP growth for five-year periods and the corresponding dollar of debt growth. Today, each new dollar of public and private debt buys 14 cents worth of growth. Before 1981, each dollar of debt resulted in more than a dollar of GDP growth.
Unproductive debt isn’t the only culprit behind slowing productivity growth. The misallocation of capital via meme coins has the same undesirable effect.
What is Productivity?
Productivity measures the leverage an economy can generate from its two primary inputs: labor and capital. Without productivity, the economic growth rate relies solely on the growth of the two primary inputs. The limited nature of labor and capital naturally leads to declining growth rates over long periods if society neglects productivity.
Leveraging labor and capital through productivity provides dynamism to an economy. Unfortunately, productivity requires work, time, investment, and sacrifice. It’s a function of countless factors, including innovation, education, government policies, and financial incentives.
The more effectively or productively we use our resources, the more economic growth per unit of resource can be attained. Thus, more wealth per capita can be generated.
Like unproductive debt, when a dollar is used to purchase a meme coin or other cryptocurrency, that is a dollar not used for productive means. Consequently, the $90 billion tied up in meme coins is not being invested into cancer research, job training, education, or AI innovation, to name a few productive uses.
Other than a good laugh, do meme coins provide benefits to society? If the answer is no, meme coins offer a good example of how unproductive capital impedes long-term economic growth, directly impacting the populace’s wealth.
Not All Tokens Are Unproductive
It’s important to note that meme coins are tokens, but not all tokens are meme coins. Some tokens are productive. They can represent a physical asset, contract, agreement, or service. In some cases, they make transacting and transferring ownership more efficient. In the process, they can make those assets more liquid.
For example, tZERO, a joint venture of Beyond and the Intercontinental Exchange Inc. (ICE), is developing the ability to tokenize hotel rooms, sports teams, real estate, and many other assets and services. Hotel rooms, for example, are highly illiquid assets and nearly impossible for most investors to own. With tokens backing such assets, they can become more liquid. Thus, capital can more easily flow to such ventures. The ability for capital to flow more easily and cheaply makes said assets more productive.
Summary
If our nation is to continue to prosper as it has for the last 250+ years, our focus on productivity must be more of a priority today than at any time since America was a sleepy British outpost. Our resources are still vast but dwindling. We will stagnate if we continue to forego investments in productivity growth and favor investing in memes and other unproductive ventures.
Meme coins are just the tip of the iceberg representing unproductive uses of capital. We could write volumes on other examples. But given its current popularity, we use it to help spread the productivity gospel once again.
