How to differentiate NFTs from memecoins

On the heels of July 4th celebrations, final Friday, July 18, President Donald Trump signed the GENIUS Act into regulation, making it the primary federal regulation to manage stablecoins. Accepted by Congress on Thursday, July 17, the invoice’s passage noticed the digital asset business belongings surge previous a $4 trillion market capitalization for the primary time. 

The GENIUS Act imposes federal and state oversight on stablecoins—digital belongings backed by the U.S. greenback—reworking realms of finance ceaselessly and making President Trump the de facto crypto president of our Nation.

President Donald Trump’s World Liberty Monetary platform has a mission to “make crypto and America nice” and has issued a stablecoin USD1. Moreover, previous to taking workplace for his second time period, President Trump issued nonfungible tokens referred to as “Trump Digital Buying and selling Playing cards” in addition to Official Trump (TRUMP) memecoin. Whereas stablecoins are regulated by federal regulation, NFTs and memecoins are nonetheless in want of regulatory readability from the US Securities and Alternate Fee.

How can an investor distinguish between an NFT and a memecoin earlier than investing, and are these good digital asset investments? I requested a number of the business consultants for sensible steerage on these questions for my readers’ profit.

Tips on how to  differentiate between NFTs and memecoins

Typically talking, NFTs are distinctive digital belongings saved on a blockchain, representing possession of a selected merchandise, digital or bodily. Not like fungible digital belongings, that are interchangeable, every NFT is distinct and can’t be changed by one other. A memecoin, however, is a sort of digital asset that’s usually created as a joke or parody of an web meme, pattern, or humorous idea. Whereas memecoins share the underlying blockchain expertise with different digital belongings reminiscent of Bitcoin (BTC), Ethereum (ETH), Avalanche (AVAX), NFTs, and stablecoins, they typically lack a severe monetary or technological function.

Kristen Mierzwa, Head of Digital Property at FTSE Russell, additional explains to me in an interview the distinctions between NFTs and memecoins: “FTSE Russell has been pricing and calculating indices on digital belongings since 2019. Our purpose is to cowl the investible crypto markets, which embody stablecoins together with memecoins, however don’t embody NFTs. We’re figuring out digital belongings which might be listed on centralized exchanges per our guidelines within the ‘Information to the Vetting of Digital Property and Digital Asset Exchanges,’ or Vetting Guide. As all the time, we’re taking a rules-based method to this asset class. For extra data on how we choose which belongings are included in our FTSE Digital Asset Universe, which is rebalanced quarterly, please discuss with our Guide to Coverage.

The simplest means for anybody to determine if a digital asset is a memecoin or an NFT is to see if the asset has a token image. An instance can be Dogecoin (DOGE) with a logo, whereas an NFT doesn’t have a token image. One other nice identifier you’ll be able to search for is that if the digital asset is offered in fractional models like 0.0001, which might be a memecoin quote. Should you see a picture with a novel ID like #221 of a group, it’s seemingly an NFT.

Now let’s take into consideration the attributes related to a memecoin versus an NFT. We classify memecoins within the FTSE Grayscale’s Crypto Sector Index Collection within the Consumer & Culture sector. The reason being to seize the social traits linked to the utilization of memecoins. Fairly merely, many customers are having enjoyable buying and selling some of these belongings like Fartcoin (FARTCOIN). The valuation of memecoins in our universe is predicated on the executed trades on centralized exchanges. We then mixture these costs each 15 seconds and type a Quantity Weighted Common Value. Examples of NFTs that many individuals are aware of are the Bored Ape Yacht Membership NFTs. These are thought-about collectibles and, like every one-of-a-kind piece of artwork, there isn’t any easy methodology to valuation. It might be the newest gross sales historical past, an analysis of uncommon traits, movie star affect, liquidity, and market sentiment, to call a number of.”

From a regulatory perspective, the SEC employees views typical memecoins as collectibles and has not supplied clear, formal steerage on whether or not NFTs are securities, however has as a substitute pursued enforcement actions, generally citing resale royalties as proof that an NFT is a safety. Due to this fact, buyers want to investigate memecoins and  NFTs on a case-by-case foundation, specializing in whether or not the NFT is getting used as an funding contract relatively than a collectible or digital asset, with the differentiation remaining advanced and topic to additional interpretation and particular person assessments based mostly on the tokenomics, particular traits, and advertising and marketing of every token.

Shane Molidor, CEO and founding father of Forgd, a platform and advisory agency specializing in supporting blockchain initiatives, defined to me: “Memecoins are usually fungible tokens, with many memecoins launched with ‘no utility’ disclaimers. The SEC’s Division of Company Finance considers most memecoins to be akin to collectibles relatively than securities beneath federal regulation, however can nonetheless view them as securities beneath the Howey Check, particularly if the tokenomics enable coordinated promotion, insider allocations, or implied revenue expectation.

NFTs, however, are nonfungible and sometimes characterize digital artwork, collectibles, or in-game objects. From a regulatory standpoint, NFTs are much less more likely to be thought-about securities except they’re fractionalized or marketed with an expectation of earnings tied to the work of others.”

Are NFTs and memecoins good investments?

Kristen Mierzwa of FTSE Russell—which is a worldwide index supplier, subsidiary of the London Inventory Alternate Group, that creates and manages a variety of monetary market indices; they’re recognized for his or her FTSE and Russell index sequence, that are utilized by buyers worldwide for benchmarking, funding methods, and creating monetary merchandise—stated to me: “As an index supplier that invests in memecoins however not NFTs, we follow speaking in regards to the reported historic numbers and don’t make predictions in regards to the future. It’s clear that memecoins are trending up out there capitalization in our investible universe. FTSE Russell doesn’t make suggestions on whether or not memecoins belong in an index; we merely cowl the info in order that our shoppers can resolve what the suitable benchmark is for his or her funding goal.”

William Quigley, a cryptocurrency and blockchain investor and co-founder of WAX and Tether (USDT), defined to me: “I anticipate 2025 to be a meme coin market excessive yr parallel to the digital asset bull run akin to when the NFT market exploded throughout the first a part of 2021.”

As Shane Molidor, CEO and founding father of Forgd, defined: “Memecoins might be helpful instruments for influencers—usually, influencers’ earnings are decided by the quantity of consideration they get, and the way effectively they will monetize it through adverts. The issue for influencers is that social media platforms act as gatekeepers—they decide who will get ‘screentime,’ and consequently, how a lot cash creators could make off of adverts.

Creators, to some extent, bypass this by creating various income streams like merchandise, and many others., however memecoins are actually the purest instantiation of the eye economic system. As a substitute of an consideration economic system on the behest of some shadowy tremendous coders who decide your ‘rank’ in a black-box algorithm, memecoins put creators’ destiny within the arms of the free market—the cash they make is proportionate to the eyeballs they’re in a position to get on their token, and that’s it. An extra benefit of memecoins is that utility might be embedded in that token too, so as a substitute of merely being an consideration token, a musician might, for example problem a token that offers followers a monetary stake within the artist’s success, function loyalty token, or can be utilized for unique content material, merch, or entry, and many others.

That stated, memecoin markets largely perform like playing, and are extraordinarily unsustainable right this moment. Playing, at face worth, is actually sustainable—the business is value over $1 trillion, and with monetary nihilism on the rise (as folks discover themselves more and more financially determined), the business is simply getting bigger. The rising recognition of memecoins is a symptom of this phenomenon as effectively.

Nonetheless, in contrast to legacy playing (reminiscent of casinos), the sport principle behind memecoins doesn’t lend itself effectively to sustainability. Pose this: you’re the proprietor of a on line casino. You personal all of the slot machines and poker tables within the on line casino. The very last thing you wish to do is for everybody to lose cash. You could have an optimum technique whereby some folks generate profits, and a few folks lose cash, but it surely’s structured such that it’s not utterly extractive. Because you personal the whole lot within the on line casino, you’re positive shedding cash on some video games to generate profits off of others. However with memecoins, that couldn’t be farther from the reality. Each memecoin creator has each incentive to extract maximally; they aren’t apprehensive about clients returning to their on line casino. This creates a whole lot of churn and extractive habits, which is what we see right this moment.”

Sergio Hamza, the Founder and CEO of Coincu, which got here out with a digital asset danger report, agrees with all professional feedback, including: “U.S. President Donald Trump’s memecoin mania and Argentine President Javier Milei’s public blunder have spotlighted how wild and unpredictable the memecoin market might be. Trump’s memecoin raked in hundreds of thousands, crashed spectacularly, and handed the European Central Financial institution new ammunition to wish to tighten MiCA’s grip even additional right into a European crypto standstill. On the similar time, Milei’s memecoin try fizzled, fueling extra ‘I instructed you so’ from international regulators. However behind the chaos, there’s an actual likelihood for memecoins to develop up. With agentic monetary automation and unbiased AI instruments, we might see memecoins evolve from pure hypothesis right into a basis for digital monetary independence.”

Lukas Enzersdorfer-Konrad, Deputy CEO of Bitpanda, factors out: “We’re seeing a transparent shift in momentum throughout the crypto market, with sturdy capital rotation away from Bitcoin and into altcoins. Ethereum, XRP (XRP), Solana (SOL), and even meme cash like Dogecoin are considerably outperforming BTC over the previous week, exhibiting that buyers are more and more prepared to maneuver additional out on the danger curve. Whether or not this marks the beginning of a sustained altcoin [memecoin/NFT] season stays to be seen, however the present rally reveals simply how shortly sentiment can flip as soon as confidence and liquidity are in place. The broad ecosystem is clearly wholesome, and there’s extra for buyers to discover than simply BTC and ETH.”

John Crain, co-founder and CEO of SuperRare NFT platform with a brand new NYC-based bodily artwork gallery referred to as Digital Decadence, says, “SuperRare offers particularly in artwork NFTs— whereas NFTs are a wider digital asset class than merely digital artwork or collectibles. Whereas initially gaining prominence within the artwork world, NFTs’ use has expanded throughout quite a few industries and functions, together with however not restricted to gaming, actual property, music and leisure, provide chain administration, digital id and credentials, occasion ticketing, mental property and royalties, phygitals, literature, and digital publishing. I believe we’re going to see sluggish, regular institutional adoption of the NFT digital asset class, making them good investments.”

I beforehand lined a few of these subjects. Learn additional on the music business, actual property, and digital id, for instance. 

US taxation of memecoins, NFTs, and collectibles

In the US, digital belongings, which embody stablecoins, memecoins, NFTs, and collectibles, are taxed as property. While you promote or trade digital belongings, it’s possible you’ll incur capital positive factors or losses, that are topic to taxation. The tax fee will depend on whether or not the positive factors are short-term (held for one yr or much less), long-term (held for multiple yr), or collectibles. 

Underneath March 2023 IRS guidance, sure NFTs could also be labeled as collectibles—subjecting them to a better capital positive factors tax fee of as much as 28%, in comparison with the usual 15–20% for different crypto belongings (per IRS Notice 2023-27). The excellence of a digital asset between an NFT and a memecoin could also be significantly necessary as a result of taxation of collectibles. For instance, an investor may assume that President Trump’s NFTs and memecoins are each collectibles. However buyers must make the dedication beneath the tax guidelines and never what they suppose or what the SEC says.

Moreover, buyers are urged to contemplate the cross-border tax implications of such digital asset investments as effectively. Some nations impose a federal stage and VAT (which means gross sales tax) on such investments, and a few tax treaties impose double tax on capital positive factors.