On December 4, 2024, viral TikTok sensation Hailey Welch launched her crypto coin named after her infamous catchphrase “Hawk Tuah.” Interestingly, Hawk Tuah Coin, or the $HAWK token, was not created with any clearly defined purpose or utility. As noted by Welch’s publicist, it existed solely as a way to bring fans together.
Driven by hype and fan frenzy on social media, the token launched with a 900 per cent spike from its starting price. At its peak, the $HAWK – widely considered a meme coin among fans — reached nearly $500 million in market capitalization. In traditional finance, market capitalization refers to the value of a company traded on the stock market. Within hours though, the coin’s value plummeted, losing almost 95 per cent of its value. According to a subsequent lawsuit filed by 12 investors, they lost more than $151,000 combined after investing in the coin.
The meteoric rise and fall of the Hawk Coin highlights the volatile nature of crypto coins. It also serves as a reminder that meme coins can be created with suspect intent, often lacking any real utility beyond generating hype. Remember, the allure of quick profits and the excitement of buying into a social media frenzy can be tempting, but investing in these assets can be extremely high risk.
What are meme coins?
Crypto assets were designed with the aspiration of being part of a wider movement to build the foundations of a new decentralized financial system. In this system, transactions between two parties could take place without the need of a government or financial institution middle man. Although meme coins are a type of cryptocurrency, they do have differences.
Meme coins typically emerge from internet culture, celebrating viral humour, social media trends, or influencers rather than financial fundamentals or real-world use cases. What makes these coins popular is their unique ability to capitalize on a sense of community and belonging through humour. Additionally, in some cases, uninitiated investors believe that the low price of meme coins makes them an easy and accessible investment option.
However, because the value of meme coins is primarily driven by community sentiment — and anyone can create a meme coin with the click of a button — they are particularly vulnerable to manipulation. This includes scams such as pump and dumps schemes, particularly with new Initial Coin Offerings (ICOs).
How do crypto coins get pumped and dumped?
A pump and dump scam typically takes place in two phases.
The scheme begins when a group of coordinated actors – often the coin’s creators, early investors, or influencers – artificially inflating the coin’s price through aggressive online marketing campaigns and coordinated buying. They generate buzz through social media, often leveraging influencer partnerships, viral content, and promises of “going to the moon.” This is the “pump” phase.
Once enough unsuspecting investors buy into the scheme and drive up the price, the fraudsters execute the “dump.” In this phase, they sell their holdings en masse for a substantial profit, triggering a massive price collapse. Regular investors, drawn into the scheme by the hype and promises of quick riches, are left holding virtually worthless coins.
Red flags: How to spot a pump and dump scam
As with any scam, protecting your money begins with taking time to check first for red flags or warning signs. Remember, meme coins are extremely volatile and a high-risk investment, with the potential for significant loss. Before committing your money to any investment — traditional stocks and bonds, crypto or meme coins — ensure you thoroughly research the investment for its legitimacy and alignment with your financial goals and risk tolerance.
- Unregistered individuals or trading platforms
Generally, in Canada, anyone offering investments or investment advice must be registered with securities regulators in the provinces they do business.While trading crypto is allowed in Canada, not all crypto assets are considered securities or derivatives. To protect investors, the Canadian Securities Administrators (CSA) requires all Crypto Trading Platforms (CTPs) or crypto exchanges to be registered with a provincial securities regulator, such as the Alberta Securities Commission.
Always verify the registration status of a platform in your province before investing.
- Token distribution, ownership and audits
Just as fundamental analysis is crucial when investing in stocks, it is important you do your own research when investing in crypto.Understanding how the crypto token your interested in is shared or allocated among different user groups, such as the founders, investors, and the community can reveal potential red flags.
Remember, decentralization is a foundational principle of blockchain. Be wary when a small number of wallets hold most tokens. High wallet concentration — where a few wallets hold most of the tokens — could indicate centralization and make the coin vulnerable to manipulation. It is also worthwhile to explore code audits conducted on the coin by the crypto community to uncover any potential vulnerabilities or red flags of the coin.
- Aggressive marketing and social media hype
Scammers often exploit social media to generate artificial demand and FOMO (Fear of Missing Out). Be cautious of over-the-top marketing and promises that sound too good to be true.
The humour and hype surrounding meme coins may seem harmless, but can expose you to significant losses. The social media frenzy around the $HAWK coin shows how easily manufactured hype can mask a pump-and-dump scheme. Remember, separating hype and celebrity interest from your investing decisions can help you better realize your long-term financial goals.
