Bitcoin vs. Meme Coins
Bitcoin is crypto’s oldest asset and the digital era’s equivalent of gold – a bearer asset that allows holders to store their wealth over longer timeframes. Meme coins, on the other hand, are by nature highly speculative, running on attention and mindshare, and their sole utility is to make holders rich. How have such diverse assets become the leading players in the current cycle?
Key Takeaways
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Societal and economic undercurrents are driving investors towards alternative stores of value and high-risk gambits.
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Bitcoin has cemented its role as the digital era’s gold, and the passive ETF bid from TradFi has enabled its outperformance, leading to an explosion of innovation on and adjacent to the network.
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Meme coins have been the dominant vertical to date this cycle, and these leveraged plays on the underlying ecosystem, while being zero-sum, have proven that they are here to stay, and investors must adapt accordingly.
Every cycle has its idiosyncrasies, and this cycle’s leading characters are Bitcoin and meme coins – assets that occupy polar opposite positions on the risk spectrum. Is this bifurcation a social commentary? Have VCs played a role in this increasingly fragmented and divided capital allocation?
*Note: This article reflects the opinion of the author and do not necessarily reflect the opinion of CoinGecko.
Gold: Bitcoin’s Predecessor
While the above chart may look like a supercharged meme coin, it is, in fact, the yearly price of gold. Yes. A $16 trillion asset is currently in price discovery. Gold is a beautiful asset for macro investors. Considered a ‘safe haven,’ gold rallying paints a colorful but grim picture. Gold moving aggressively is almost always driven by the following factors:
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Economic uncertainty
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Geopolitical instability
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Inflation hedging
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Dollar weakness
Gold’s massive rally points to one rather bleak conclusion. The market is sniffing out that the FED has pinned itself into a corner, and the government cannot stop spending.
People have discussed the dollar collapse for decades and primarily point to 1971. Nixon took the world off the gold standard on August 15th, announcing that the United States would no longer honor dollars for gold. He gutted the international monetary system of gold, and the beginning of expansionary monetary policy began in earnest. Instead of hard assets, fiat currencies began to derive their strength from the issuer. No longer was fiat backed by anything except confidence. The other significant event in gold’s history was Executive Order 6102, signed by Franklin D. Roosevelt on April 5th, 1933. He needed an elastic money supply to help recover from the Great Depression. The demand to increase the money supply motivated the disentangling of fiat and gold in both events. Since these events, especially 1971, fiat money has, in simple terms, been a fugazi. Readers interested in the effects of this decision can observe several fascinating data points on WTF happened in 1971.
While many will call for a great devaluing, they are quick to forget that financial plumbing is outrageously persistent. Calls for the collapse of the dollar have been heard for decades. And increasingly, the limelight falls on what critics call the ‘national debt death spiral.’ One alarming statistic doing the rounds is that over the last 120 years, 98% of all countries where sovereign debt/GDP hit 130% ended up defaulting – the United States’ current debt-GDP ratio hovers at 120%, down from 132% in 2020.
In short, gold has been surging because markets smell a rat, and confidence in the dollar is crumbling. The United States' national debt has ballooned to such a level that it has become unmanageable, and interest payments continue to mount. Powell has a rotten job, beset on all sides. He cannot keep rates high due to the rising cost of servicing government debt, and this will likely be the primary motivation for cutting rates. Manage the debt burden, fight inflation, and avoid a recession – a tall order.
The net result will be the same as always. The FED will turn the printer back on to service old debt, and the dollar's value will diminish. However, they will need an excuse to do so. The losers in this trade are those holding dollars or Treasuries. At a high level almost every trade is either long or short the dollar. Gold’s impressive performance signals people want to short the dollar currently. But does this have to do with Bitcoin or meme coins?
Bitcoin’s Value Proposition in the Modern Age
Bitcoin is the modern iteration of gold. Its fixed monetary policy and Austrian economic influence have seen it become another beneficiary of decreasing confidence in the dollar. While Bitcoin used to trade as a proxy of global liquidity levels (and still does to some extent), the entrance of institutional giants like Larry Fink has crystallized its role as a serious and acceptable store of value in the more traditional world of money.
ETF Flows: The Exogenous Elephant in the Room
Spot ETF inflows have been the leading dynamic in BTC’s impressive rise. Cumulative total inflows have already eclipsed $12 billion, and now combined Spot ETF issuers have a greater AUM than Grayscale, which acts as the last natural seller. Grayscale’s Bitcoin Trust. The leading character in the ‘widow maker’ trade and the final boss/ hangover markets must flush out to move forward meaningfully.
Bitcoin’s performance in this cycle is easy to understand. Spot ETFs mean anybody can buy BTC through a regular brokerage account, and Larry Fink’s seal of approval gave TradFi the greenlight that Bitcoin is a solid and respectable asset. Bitcoin enjoys the same tailwinds as gold, and the increasing popularity of ownership can be neatly summarized by quoting Fink: ‘A flight to quality.’
Interest in bearer assets that enable investors to store wealth over longer time frames will always exist. The increasing doubt surrounding the dollar, mounting geopolitical tensions, greater market accessibility, and a growing lindy effect (the longer something has existed, the greater the probability it will continue to exist) have all been fuel for the Bitcoin fire.
Bitcoin’s overperformance in this cycle aligns with larger macro trends. The ETF was a watershed moment that investors have waited on for years, and this cycle it finally came true. Bitcoin outperforming should come as no surprise. It has unlocked the relentless passive bid informally called the ‘infinite TWAP.’ Are equities rigged to go up and to the right forever? Look at the S&P 500. It goes up constantly, and it is impossible to lose over a long enough time frame. Countless dollars flood in each month from ETF buyers saving for retirement, preserving and growing their wealth by holding stocks instead of cash. Bitcoin now enjoys this same uplift, albeit on a far smaller scale.
A Strange Cycle?
This chart was wildly accurate last cycle. But was the 2021 cycle an anomaly? People were locked inside, and stimulus cheques airdropped dollars to the public. Was that time really different? Unlikely. The next central catalyst for a genuine altcoin season will be the Ethereum Spot ETFs, which may or may not be approved in May. Why? Much of the Bitcoin wealth has been siloed, whereas a rising ETH price naturally disperses on-chain far faster.
The emergence of extreme pockets of overperformance has been a calling card of the 2024 cycle to date, and the result is that investors have to get better at allocating capital. No longer is the rising tide lifts all boats market dynamic in play, and instead, certain altcoins are becoming liquidity blackholes while the rest float statically. Outside of meme coins, only a handful of altcoins have performed well in the last month: Aerodrome Finance (AERO), Goldfinch (GFI), Toncoin (TON), Pendle (PENDLE), Jupiter (JUP), Shadow Token (SHDW), Raydium (RAY), and Joe (JOE). Note the heavy dominance of Solana tokens in this list.
But why the heavy skew towards Bitcoin and meme coins?
The thesis currently being pushed is that the market is not in the PVE (Player Versus Environment) phase traditional of bull markets but rather a more advanced phase of PVP (Player Versus Player) with crypto natives using their newfound BTC wealth to trade against each other on meme coins.
What follows is the author's entirely personal opinion.
I believe there is a certain amount of cognitive bias wrapped up in this theory, as there is, in my own opinion. Greed has always been a primary driver of the impulse towards altcoins. Investors see that majors have already pumped and quickly scurry further out on the risk curve, hoping to frontrun others doing the same. Meme coins perfectly encapsulate this impulse. Crypto is the modern era’s greatest implementation of a frictionless market, it attracts global capital flows, and humans have a deeply ingrained desire to speculate. Together, the meme coin meta makes perfect sense. As markets have matured, the cypherpunk element of creating something meaningful has faded to be replaced with a gambling appetite looking to make generational wealth. Humans always take the path of least resistance, and the ability to turn four figures into six clicking several buttons is an intoxication so profound that the lizard brain stands no chance of refuting it.
Meme Coin Supercycle?
This cycle has been dubbed the ‘Memecoin Supercycle.’ Instead of altcoins blindly rallying, meme coins, the most speculative arm of the space, have been in the driver’s seat. I personally disagree with the thesis that the meme coin mania is late-stage PVP behavior. Rather a new evolving dynamic and social commentary on the growing bifurcation between owners and debtors, a more honest reflection of markets, and the rise of greed tinged with a background flavoring of despair. Markets reflect their constituents. Crypto’s volatility attracts players and it is the most exciting multiplayer money game that exists – naturally the long-tail risk element thrives.
What Is the Meme Coin Supercycle Thesis?
Attention is the most valuable currency in the modern era, and meme coins capitalize on this. They are intrinsically retail-friendly tokens, and when there is distributed ownership (no large wallets holding a concentrated percentage of supply), they are by a country mile the most egalitarian tokens on the market. More on how VCs have fueled the meme coin rise later.
Capital follows attention, and where attention flows, liquidity will inevitably follow. The only truly scarce resource in the crypto economy is attention – a thesis outlined by Cobie in his late 2021 piece ‘Tokens in the attention economy.’ Tokens live and die on their ability to draw eyeballs, and this dictates the underlying demand and, therefore, value of the project. The winners capture attention and remain popular. That is all it takes to succeed in a bull market.
Meme coins play this game better than almost any other token. They proved themselves in the last cycle and have been the absolute dominant vertical this cycle. Anybody who wants a deeper understanding of the thesis can read Kelxyz's thread. But in short, crypto markets run on attention, meme coins have shown themselves to be the best at capturing attention, and the majority of investors do not care about true value. Together, these factors lay the groundwork for a meme coin supercycle.
Source: https://dune.com/cryptokoryo/btc-pairs
Meme coins have outperformed literally everything this year and by a significant margin. Altcoins look dead in the water and the only market participants making any money are those who bought a slim selection of strong altcoins and those diving into the meme coin narrative. Funnily enough, meme coins follow the traditional investing wisdom of buying value in a bear and buying risk in a bull.
Social Commentary: Swing For the Fences?
A litany of societal factors are all at work in the background, fermenting the conditions for a continuation of meme coin overperformance. Like everything macro, it would be impossible to include them all, so only a small selection can be presented in this article.
A Society of Gamblers
Access is always a core driver, and the mass proliferation of sports betting applications and growing gamification of gambling has supercharged revenue across the board (notice the link between gambling accessibility, gamification, and accessibility, and meme coins which operate in frictionless and permissionless markets trading around the clock). Gambling revenue shows year-on-year growth, and data from Research and Markets states that ‘the lottery market size has grown strongly in recent years. It will grow from $283.71 billion in 2023 to $311.11 billion in 2024 at a compound annual growth rate (CAGR) of 9.7%. Does buying a meme coin come with better odds than winning the lottery?
This increase in speculative behavior is not limited to more traditional gambling and has additionally bled out into conventional markets. Zero-day options comprised 43% of the total options SPX volume in 2023.
Zero-day options (0-DTE) are financial derivatives that, as the name suggests, expire on the same day they are traded. People buying zero-day options are speculating over extremely short timeframes. This high focus on either news events or intraday swings does detract from fundamental analysis. Here, it is observable that narrative trading and short-term fluctuations, namely emotions, are becoming a more dominant driving force in traditional markets as well as crypto.
Financial Nihilism
Is it a larger societal problem pushing investors into meme coins? People want to shoot for the Instagram lifestyle while the value of labor is constantly eroded, and each expansion of the money supply worsens the dynamic between labor and capital. In the modern world, the only way to make it is to create assets and sell them at an overvalued valuation or buy and speculate on them.
Median house price to median income is a classic metric for the health of the American dream, and that dream has been getting more expensive since the 1960s. Money printing has destroyed the dynamic between capital and labor (it inflates the value of assets while labor gets left behind), and globalization means global markets have further eroded the value of labor in advanced economies. Inflation and the rising cost of living have put most regular folk in a chokehold, and the idea of upward mobility seems almost laughable. This year, the Forbes Under 30 billionaire list consisted solely of heirs, another indicator of society's growing bifurcation between the haves and the have-nots.
Financial nihilism, while somewhat a meme passed around by Web2 LinkedIn posters, is worthy of attention. It advocates that market participants are increasingly dismissing fundamentals, placing greater importance on speculation (the rise of zero-day options supports this), and a broader skepticism in general (markets are fundamentally unfair with the deck stacked against the retail investor – more on how VCs have fueled the rise of meme coins in the next section), which therefore justifies the use of highly aggressive strategies and increased levels of risk-taking.
The Rise of Risk-Taking and a Class of Hyper-Gamblers
The cost of living is rising far faster than wages are growing, and whether it be in the stock market or traditional gambling, such as the lottery, people are gambling more and more. Fears centered on the dollar debasing are forcing more investors into the stock market or meme coins. Interestingly, valuations are one of the first things to disappear during debasement, as observable in the P/E ratio of Argentinan stocks, where people will pay a massive premium not to hold the underlying currency.
The cost of living is squeezing ordinary folk, upward mobility seems to be more of an illusion than a reality, and the American dream is on life support. In the United States, the political will to balance the budget simply does not exist, and the boomers currently steering the ship will continue to print money. Younger generations must get creative and hyper-gamble their way into wealth or find alternative stores of value. To quote DegenSpartan: ‘You get a short period of time after you graduate to hypergamble into elite status or you end up wage cucking for life.’
Globally, risk-taking behavior is up across all markets, focus on fundamentals is down, and looming anxiety about the future outlook is funneling investors towards more speculative options in the hopes of escaping the rat race early.
VCs and Why Retail Loves Meme Coins
VCs have contributed to the flight towards meme coins. Why? VCs have continued to develop increasingly elaborate tokenomics designs to part retail from their cash. Investors have grown increasingly sick of the low float high FDV (Fully Diluted Valuation) design. Prices are artificially inflated due to a low supply, and then when unlocks finally arrive, retail gets taken to the woodshed and shot.
This design enriches VCs at the cost of retail, and buying and holding any of these tokens over an extended period is asking to get dumped on by VCs. Going long on low-float coins is, by nature, a short-term play, with traders seeking to exit way before any unlocks. This reinforces the ‘quick-flip’ mentality, which is detrimental to the long-term building mentality, and further fuels the rush into meme coins.
Have a look at the data yourself to confirm this: dyorcrypto has an excellent dashboard highlighting the unrealized multiples for VCs on many of this cycle’s most popular altcoins.
VCs who buy in at a crazy low valuation are naturally incentivized to dump when they are liquid. But this intense asymmetrical difference in the retail and VC experience orchestrates the rush into meme coins. Why bother running the gauntlet of complex unlocks, hidden sell pressure, and, bluntly, a situation where the deck is stacked against you? Instead, investors can purchase meme coins on-chain, head to SolScan, enter the contract address, and see all of the wallets holding the token and what percentage these wallets hold. No concentrated supply held by several wallets? Away to the races.
Source: https://www.tradingview.com/symbols/BTC.D/
The Dominance of Value & Risk
The recent bloodbath among altcoins resulted from market overextension. There was simply not enough incoming liquidity to support all of the new launches and token emissions, and the market collapsed under its own weight. Meme coins were absolutely devastated but were also among the fastest to recover.
Bitcoin dominance speaks a thousand words, and the divergence between underperformance and outperformance has ramped up this cycle. Investors holding altcoins now look to an Ethereum ETF approval to import liquidity into DeFi.
Value
Bitcoin is maturing wonderfully as an asset. It continues to enjoy the passive TradFi bid inflow, and this dominance has second-order effects, such as the rampant explosion of Ordinals and the hype around Runes. Building on top of the dominant ecosystem makes lots of sense. It is a bearer asset with a fixed monetary policy existing in a fiat world defined by expansion. Its rise as an alternative store of value speaks to growing distrust of the dollar’s central counterparties (government deficits and the FED), and BlackRock’s approval sealed the deal for TradFi.
Risk
Meme coins fairly represent the innate greed present in every market participant. They strip away the fancy tokenomics models and higher-purpose virtue signaling replacing them with a viral ticker and funny image. However, their rise does poke at more fundamental questions. Meme coins are fundamentally zero-sum and an elaborate game of financial chicken. The only way an investor increases their wealth is by selling the token. The low levels of liquidity relative to market caps will evaporate vast amounts of paper wealth when people start running towards the exit. Whether investors want to hold meme coins as leveraged beta plays on the underlying chain or hold the token because the ‘dog has a hat,’ the end result is the same.
The risk vertical will likely continue to outperform this cycle, given that the factors driving their success are deep societal issues. People are desperate to climb the ladder, and faced with the inability to purchase a house and a lack of social mobility, they will be forced to gamble. The general economic malaise creates the condition for meme coins to flourish, and the bitter truth is that this class of assets outperforming altcoins points to growing human desperation.
Meme coins are also, at the end of the day, incredibly fun. They require no mental overhead and are highly accessible to anybody. Market agents can create an edge relatively easily, and this should not be underestimated in pulling users into the meme coin arena. While the music plays, they will be the fastest horses.
Navigating the Future
Crypto is a highly risk-on asset class, and meme coins lie on the furthest reaches of the risk spectrum. Bitcoin’s role as a hedge against dollar devaluation will grow with time, and meme coins will continue to rally aggressively due to a general disenchantment with complex tokenomics models stacked in favor of VCs and market participants’ desires to change their economic circumstances. A cycle defined by value and risk. Be aware that the collapse of meme coins will be nasty, brutish, and short. Low liquidity and a PVP attitude guarantee this outcome. But until the music stops, they will continue to be the overperformers.
Memes bottomed before majors in the most recent move, and while majors pick up steam, meme coins are ripping to new ATHs. All you have to do is read the tape. Price action has shown time and time again that meme coins move fastest from the lows- an incredible amount of sidelined capital jumps at every opportunity to enter. The reality is that the majority of market participants do not care about value, and in a bear market, everything loses 90% of its value anyway. Best to ride the most aggressive horse while the times are good.
Humans love to gamble, and meme coins are the crack cocaine of speculation. Choose your fighters, and may the best man win.
All opinions expressed in this article are the writer's own and should not be taken as representative of CoinGecko. Always do your own research and understand that cryptocurrencies (especially meme coins) are highly speculative.
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