This issue of Clips is based on a discussion I had with other investors in a crypto community about the topic of Meme. In this article, I will elaborate on my views to fully express my opinions.
The following content represents my views at the time of publication and may contain factual errors and biases. It is intended for discussion purposes only, and I also welcome corrections from other investment research professionals.
Buy low in a bear market, but don’t choose Meme projects.
That sounds like a meaningless statement, doesn’t it? Who would choose to allocate their long-term investments to Meme projects with a lifespan ranging from a few months to a day?
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However, the Meme discussed in this article refers to “blue-chip Meme” projects such as Doge, Shiba, and Pepe, which have a large market capitalization and have already entered the mainstream.
Some opinions believe that “new-generation small-market-cap Meme” projects like Pepe, which have already gained significant influence, will replicate the trajectory of Doge in the next bull market cycle and achieve a market capitalization of billions.
But in my opinion, when making cross-cycle allocations, it may not be a good choice to buy in a bear market.
The value source of Meme tokens
Meme is a phenomenon of cultural and informational self-reproduction, replication, and dissemination. Meme tokens are tokens of crypto projects with memetic properties. One of their characteristics is that the tokens themselves generally do not have direct value capture, and the projects often parasitize or derive from memetic IPs outside the crypto world, such as Doge’s Shiba Inu, Pepe’s Pepe frog, or recently popular projects like Bitcoin, which features Harry Potter, Obama, and Sonic (four Buffs stacked). In addition to well-known figures and popular culture, widely accepted viewpoints can also be sources of Meme. For example, LTC’s positioning as “digital silver” relative to BTC as “digital gold” was once considered a financial Meme that inherited the dual cultural power from precious metal silver and BTC.
Unlike other business-oriented crypto projects such as DeFi and web3Game, Meme seems to lack a business model, but its business model and PMF (Product Market Fit, a product that matches user needs) are very clear, namely: providing speculative media with great imagination for the general crypto investors.
When we say “providing for the general investors,” it means that the concept of Meme is simple and fresh, and its concept can be strange or conflicting, making it easier to capture the attention of the masses amidst a vast amount of information.
When we say “great imagination,” we mean that they do not have actual business operations as the gravitational force of their token price, and their valuation based on “consensus” alone can skyrocket.
Even the most serious crypto practitioners cannot deny that “speculative profit” is an important, if not the primary, driving force in the crypto world, and the endless stream of Meme projects is the PMF that responds to this demand.
The superiority of encrypted Meme tokens compared to other traditional speculative assets is also very obvious:
- Unprecedented “accessibility”. As long as you have a crypto wallet and internet access, people from anywhere in the world can participate in its speculation without KYC, registration, or scrutiny. There are no identity barriers, and trading is available 24/7. In the traditional financial world, it is difficult to participate in the speculation frenzy like the GameStop event in 2020-2021.
- Information transparency. Although it is still possible for Meme issuers to manipulate and influence code, funds, and rules, the transparency of token information, fund flows, and algorithms in encrypted Memes has greatly increased. Compared to traditional black-box Ponzi schemes, the “information starting point” for speculation is fairer.
- Various varieties, always abundant targets. The cost of initiating and creating a Meme project is very low, and projects emerge endlessly. “Opportunities are always plentiful.”
Unlike conventional web3 business projects (such as DeFi), the intrinsic value growth of Meme tokens comes purely from the marginal influx of attention and funds from future speculators (without negative connotations). For the former, we mainly predict the growth or decline of their business, and for the latter, we need to speculate on the attention and capital votes of future speculators in the market.
This also means that the main task of the operators of Meme projects will be to attract and provoke the attention of the masses, guide attention in the right narrative direction, and promote the spread of FOMO emotions.
The problem is that not only is this difficult, but it may also not be in the long-term interest of the new generation of Meme project operators.
Meme tokens lack moats
The development of Meme projects has obvious stages:
- Ideation and narrative design: challenging the mainstream, inspiring fighting spirit, and breaking conventions in a bizarre and absurd way, but not too far away from the masses
- Early promotion: attracting the attention of early speculators, whether it can gain recommendations from influential figures at this stage is a turning point for success or failure
- Shaping and expanding FOMO: spreading the wealth stories of early participants widely, greedily attracting more people to enter, people believe that what they are about to join is not the final wave
- Greater adoption: listing on large exchanges, getting rid of the label of being a “shitcoin,” and becoming a true mass speculative asset
- Maintaining attractiveness: defending the market share of existing attention and speculative capital
Dog-like Meme projects that are still in their early stages are fragile, and under the premise of long-term allocation, this article mainly discusses the “Meme blue chips” that have entered stages 4 and 5.
As mentioned earlier, the operation of Meme projects is actually the attention of the masses, but the transfer of attention is inevitable. The migration of attention is much easier than the transfer of user funds, usage habits, and preferences for specific brands.
More importantly, the cost of creating a meme is so low that existing memes face endless competition for the attention and resources of speculators.
However, existing memes have limited means to maintain their existing share of attention in the face of competition from later memes. Take Shiba as an example. It gained market attention by being born as a meme during the bull market and by performing a “novelty” and topical “sophisticated operation” of airdropping 50% of its tokens to Vitalik, riding the wave of Doge’s rise, and securing the position of “prince of the dog world”.
However, after landing on major centralized exchanges (CEX), the ability of Shiba to gather attention and topic centrality gradually decreased, which was inevitable. Despite the frequent actions taken by the Shiba project team, such as building its own DEX, launching its own Layer 2, issuing NFTs, engaging in metaverse and gaming, and other “accomplishments,” attempting to transform from a pure meme to a business-oriented project, both the business performance and token price have been disappointing. Its DEX Shibaswap has only $21 million TVL, and its token price has significantly underperformed the market during the year.
It is not easy for meme projects to transform into business-oriented projects. On the one hand, business-oriented projects require more detailed planning and execution of strategies, products, and technologies, posing challenges to different dimensions of project operation capabilities. More importantly, the clumsiness of “working hard” appears unattractive, contradicting the initial anti-mainstream, evil, subculture, and high posture of meme projects, further eroding the gradually dissipating charm of memes.
Unlike business-oriented projects that can build certain competitive barriers based on business models, meme projects often lack means to maintain their intrinsic value. The dissipation of attention from speculators is inevitable, and working hard often produces counterproductive effects.
The team behind memes also lacks long-term motivation to maintain them
In this era of scarce attention for speculation, the success of the new generation of memes is rarely accidental. Most of them are planned and promoted by centralized clusters of power. This power often comes from the collusion of multiple forces, and in addition to funds and exchange resources, it also requires the timely assistance of KOLs, access to powerful business resources (the PEPE project was integrated into opensea as a payment method less than a month after its birth), and so on.
However, after the success of a meme, the cost of maintaining its consensus and attention becomes higher and higher. For meme teams, the smarter approach is to use a horse racing strategy to use the money earned from the previous Pepe to create more memes with different styles and narratives, in the hope of giving birth to the next Pepe. And these new “Pepes” created and pushed to the market by themselves also compete for the attention of the “old Pepe”.
Due to the anonymity of the core team of the Meme project, their decision to stay or leave a project is much less burdensome than that of the founders of other commercial projects, and the core team’s “metamorphosis” further worsens the situation of the old Meme project.
Counterexample: Dogecoin and Bitcoin
At this point, you may want to bring up a counterexample. “Doge, which was born in 2013, was able to revive in the previous bull market. Why can’t Pepe, as the new generation of meme?”
Doge is actually a positive example of most memes losing vitality with the cycle. The outstanding performance of Doge in the previous bull market is the result of the injection of Elon Musk’s personal influence. The “project led by the world’s richest man, Musk” itself is a new meme that propelled Doge to take off. Without Musk’s support, whether explicit or implicit, starting from 2019, I believe that Dogecoin’s own meme elements have already faded in the rapidly changing narrative of cryptography.
So the question is, how many people in the world have the same level of influence as Musk and will inject their influence into Pepe and let the old memes revive in the next cycle? In fact, there are only a few people in the world who have the same level of influence as Musk, and when it comes to “standing up and promoting a meme,” the list of people who meet this dual standard is empty.
Litecoin, born in 2011, occupies the powerful meme of “silver to Bitcoin’s gold,” but without the injection of other new memes and influences, its performance in each cycle is gradually weakening.
In fact, the best counterexample to the claim that “meme coins cannot survive through cycles” is not Doge, but Bitcoin. As the originator of meme coins, it is still the favorite of both new and old cryptocurrency investors and an anchor for asset allocation. However, Bitcoin, as the first meme in the history of cryptocurrency investment, the starting point of all cryptocurrency projects, derives its meme power from its unique and scarce “orthodoxy.”
This “orthodoxy” is something that no other meme possesses, so they are destined to face the attention competition of new memes in generations to come.
The difficulty of capturing attention, the inevitable departure of the initiating team, and the mass production of competing projects.
Investing in memes is ultimately a highly skilled art that values quick gains.