March 4, 2024

Will Smith’s Oscars slap became a cryptocurrency

Ryan Watson, a 29-year-old landscaper and cryptocurrency investor from Binghamton, N.Y., slept through the Oscars, including the infamous moment when Will Smith slapped Chris Rock. But two days later, he was elated to see what the event had spawned: a memecoin, dubbed Will Smith Inu.

The slap’s near-instantaneous minting into coin didn’t come as a surprise. Memecoins are cryptocurrency tied to viral moments and Internet jokes, with a fleeting value that tends to rise and fall quickly. Some currencies, like Dogecoin and Shiba Inu, have endured and are accepted by Tesla and GameStop as payment. Most, like Space Kim — a token satirizing North Korean leader Kim Jong Un — are jokes, a risky investment without any tangible purpose.

But those who get in early can walk away with a tidy profit. Which is why, two days after the Oscars, Watson bought $5,000 worth of Will Smith Inu. The coin garnered more than $3 million in trading, collapsing back to nearly zero within a week. Its temporary rise worked well for early investors like Watson, who cashed out with $20,000, but for thousands of others, it prompted a furious sell-off, with people trying to recover what little they could of their initial investment. “Scared money don’t make no money,” Watson said.

Watson says he can’t worry too much about the folks who didn’t sell early. “It’s like, why would I stop when it’s changing my life?” he said. “Just because other people lose money?”

Once considered a humorous version of cryptocurrency, the sector is now rife with scams, critics and former memecoin moguls note, making it a particularly dangerous product that provides a bounty for few at the cost of many. Nearly all analysts agree that participation is essentially a form of gambling.

“It’s a zero-sum game,” said David Hsiao, chief executive of the crypto magazine Block Journal. “If somebody is getting rich, a lot of other people are losing money.”

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By most accounts, memecoins came into existence around 2013, as an image of a talking Shiba Inu puppy called Doge was gaining viral fame. A pair of software engineers released a themed digital currency. Called Dogecoin, it was intended to satirize the cryptocurrency market.

But in 2021, with crypto veering toward mainstream acceptance, the sector began booming. Experts said the rise was due to a confluence of factors: Redditors had inflated GameStop’s stock much to Wall Street’s surprise, giving energy to outsiders who felt empowered by the idea that they, too, could manipulate financial markets. Fueled in part by high savings rates during the pandemic, many had expendable income, making them more comfortable with risky investments. And notable personalities, such as Elon Musk, touted meme currency, like Dogecoin, online.

Billy Markus, the creator of Dogecoin, signaled his distaste with memecoins in February, writing on Twitter that they have become filled with spam advertisements, lies about founders, oversize promises and desperate attempts to capture Musk’s attention for promotion.

“Current ‘meme’ coins aren’t even memes,” he added. “They’re made by people trying to get rich off of other people trying to get rich.”

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These days, there are more than 300 memecoins, according to statistics from the crypto website CoinMarketCap. As of April, their value hovers around $32 billion, garnering roughly $2 billion in daily trading volume.

Ethan McMahon, an economist for the crypto research firm Chainalysis, said that many memecoin investors don’t care about the financials of any particular coin. The main goal is to find a meme coin early based on a moment that’s trending, buy a large block of it before others catch wind and, when people flock to it, get out before the public’s attention wanes and the coin crashes in value.

“It’s musical chairs,” McMahon said. “People think that they’re going to be able to get in before the house comes crumbling down.”

For investors like Watson, the dangers simply allow him access to a host of benefits: financial freedom, a quick profit and a way out of a traditional career path and authority.

“I don’t want a 9-to-5, man. I really don’t. I’ve always struggled with authority,” Watson said. “No matter how much time I put in [a job], I never moved up. … That’s why I’m doing things like this.”

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But with the right software, anyone can make a memecoin for a few hundred dollars in a few minutes, driving up opportunities for scammers, experts noted.

Coin creators can control how many coins are minted, often allowing for sky-high amounts — in the billions or trillions — ensuring the value of each single coin is far less than one cent and making the barrier to investing in a coin incredibly low. (On Oscars night, investors could pick up a Will Smith Inu coin for around $0.0000002176.)

One of the more common scams, called a rug pull — where coin developers solicit investment in their coin and suddenly abandon it by selling their large stake, cratering the coin’s value to zero for others — has caused havoc for everyday investors in recent years.

In November, creators of a memecoin based on the Netflix series “Squid Game” let their coin rise in value over 11 days to $2,860 and then left the project, driving its price down to nearly zero and walking away with $3.3 million in investors’ funds.

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For people like William Bergan, 27, a construction worker turned cryptocurrency investor in Bethlehem, Pa., the scams are palpable: He can instantly rattle off how many times he’s lost thousands to them.

He once invested $40,000 into a “reflection token,” a coin that rewards buyers with more of it, allowing them to generate passive income. Within weeks, the coin’s developer “just gave up” on maintaining the coin, prompting an immediate sell-off that nearly wiped out his money.

Another time, he invested in a memecoin based on a dachshund dog, which purported to dedicate a portion of invested funds into warning people about other coins that could be rug pulls. It turns out, Bergan noted, that coin itself was a rug pull, costing him $7,000.

“Nothing’s ever as it seems with these kinds of coins,” he said. “There’s no logic to it.”

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Hsiao, who also created his own non-fungible token called Astro Baby Club, said scams like this are indicative of how the memecoin space has become saturated with bad-faith actors.

The developers of a coin will latch onto a viral moment, mint a coin quickly and then put up a flashy website marketing the currency, driving traffic to it through Twitter, Discord and Reddit, he said. They present grand plans for the coin’s future, including media blitzes, white papers to analyze the coin’s fundamentals and potential TV commercials.

“It’s extremely risky,” he added. “People hear these stories of people selling their houses and putting it all into Dogecoin and then retiring. But those are really like one-in-a-billion stories. That doesn’t happen to many people.”

Alkesh Shah, global head of cryptocurrency at Bank of America, said that it’s easier to think of memecoin investors as day traders and that he believes the industry is heading toward regulation, most notably with President Biden’s recent executive order for a broad review of the cryptocurrency sector.

“This is software. This is a technology that we want U.S. leadership in. But at the same time, anybody with a browser can actually engage with it,” Shah said. “Therefore, not only do we need regulation for this overall sector, we need consumer protection as well.”

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