I’m going to coin, or at least try to popularize, a new term, “Ponzi Meme“.
Obviously it’s a play on the term Ponzi scheme, but unlike a Ponzi scheme, a Ponzi meme is unorganized and unintentional. A Ponzi scheme isn’t necessarily a malicious “pump and dump”, but does follow a similar trajectory: the meme lifespan.
The meme lifespan is as follows. First, something original is created. If that thing has meme-value, it may catch on and spread. At some point it reaches peak popularity, before eventually dying down as the next batch of fresh memes take over.
A Ponzi meme is when the value of an asset is determined in large part by it’s meme-value.
Dogecoin is a great example. There are many cryptocurrencies that are superior to Dogecoin in basically every conceivable metric. At the same time, there’s one trait that allows Dogecoin the success that it has, namely meme-value.
People who own Dogecoin are inclined to produce and spread memes about it, because it ultimately increases it popularity and subsequently is value.
Whereas a traditional pump and dump Ponzi schemes are more akin to “buy the rumor, sell the news”, a Ponzi Meme is more like “buy the meme, spread the meme”.
As we know, memes have a short lifespan, and follow a predicable cycle.
The trick is to be able to predict which Ponzi meme will catch on. There’s thousands of potential meme stocks and meme currencies, but only a few ever catch on. A successful Ponzi meme investor needs to be able to accurately evaluate the meme-value of an asset.
The earlier half of investors extract money from the latter half. As such, a successful Ponzi meme investor need to get in early on potential Ponzi memes. By the time the Ponzi meme reaches the mainstream, it is far to late to buy the asset. A Ponzi meme can plummet as fast as it exploded in value.
My prediction is that Ponzi memes will become more and more common as retail investors become more influenced by internet culture. Or rather, that internet culture will have a larger and larger influence on investing.
Ponzi Meme characteristics
- Asset value is largely influenced by meme-value.
- “Buy the meme, spread the meme”-cycle.
- Memes may have a larger influence on price than underlying asset value.
- Asset value is overpriced (as judged by traditional value-investing standards: earnings, board of directors, market share, etc.)