Many retail investors are piling into new Memecoins, which are often more likely to result in losses than gains.
By Stacy Muur
Compiled by: TechFlow
Memecoins have overshadowed all other Web3 topics over the past few weeks, making it seem like the only way for regular users to get high returns is by riding the meme bandwagon. Driven by the craze for memecoins like $PNUT, $PEPE, $BONK, $BRETT, and the growing popularity of the meme category, memecoins have been in the spotlight as their daily trading volume has reached its highest level. So, is the risk worth the gains? Is the memecoin market overhyped?
The Current State of Memecoins
Are Memes Really the Theme of the Year? If you ask someone with at least five years of experience in the Web3 market how to define 2024, they will most likely say it’s the “Year Zero” for Memecoins.
Many believe Memecoins are the best performing asset of the year, with charts and rankings to back up this view. But does this really reflect reality?
1-month industry performance
Source: Artemis
If you analyze the year-to-date sector performance, the data may show different results. For example, on Artemis, the RWA Index (including Ondo, Mantra, Clearpool, and Maple) leads with a growth rate of 1,900%, while Memecoins have a growth rate of 258% and Bitcoin is 104%. In addition, it is also important to understand which Memecoins are taken into consideration. On Artemis, the Memecoin Index currently tracks only the 19 largest Memecoins.
Category rankings on CoinGecko face another problem: many memes belong to multiple categories, so a few strong risers can significantly inflate the seven-day performance across multiple categories.
Source: CoinGecko categories
Considering the Pump.fun ecosystem, which tracks 520 coins, it helps to understand why I think this is a problem. It performed very strongly, with the second-biggest gain of the week, inspiring significant FOMO (fear of missing out).
However, a closer look at the rankings shows that less than 20 tokens have a 7-day gain of more than 110% (the average for the category), accounting for only 3.8%. In addition, less than 60 tokens (11.5%) have a positive weekly gain.
This doesn't seem to be "WAGMI" anymore, does it?
The main problem with Memecoins from a performance tracking perspective is that their industry performance is often measured by the largest or most popular asset in the category.
This leads to the illusion that Memecoins are outperforming all other Web3 categories. In reality, it would be more accurate to say that only the leading Memecoins are outperforming other categories.
This brings up an important point: we need to distinguish between established memecoins and new memecoins, as they represent two very different markets.
New Memecoins
CoinGecko currently tracks 520 Memecoins on its Pump.fun dashboard. Since Pump launched, 3 million tokens have been created.
This means that 99.982% of tokens are not tracked on CoinGecko, so we have no information about their performance.
Data source: Dune
This means that 99.982% of tokens are not tracked on CoinGecko, so we have no information about their performance.
Data source: Dune
Here's some background info I researched in late August:
Most of the addresses that have gained the most are deployers of tokens
Only 3% of Pump.fun traders made more than $1,000
Only 0.8% made more than $10,000
Over 60% of traders lose money
Data source: @newtoneinsteinx on X
The biggest problem for the average new Memecoin trader is the inability to differentiate between “emerging” and “established” Memecoins.
Most new traders chase early protocols hoping to copy the 0.001% that succeed in achieving mass adoption, like $PEPE or $BONK.
I don't mean to disappoint you, but the odds of being struck by lightning are even higher: 0.011%.
Mature Memecoins
The outlook is much brighter for established memecoins, which gained market share not because of venture backing or specific valuation factors, but rather through their communities, a bit of luck, and strategic market management.
This may sound like a conspiracy theory, but I believe that most of the Memecoins with a solid market share were not created by random developers. Usually, behind these successful Memecoins are professional Memecoin development teams with ample resources for market making and marketing.
I want to make it clear that I am not saying that all popular Memecoins are the result of perfect planning, but that is probably true for most cases.
There are several plausible reasons why mature memecoins are performing better than many other Web3 spaces:
100% of supply is in circulation (no low circulation or high FDV)
No VC backing (eliminating additional selling pressure)
Organic and active community of holders
No product risk (no bugs, poor execution, or poor user acquisition)
Memecoin rotation pattern (profits from one memecoin rally flow to other memecoins)
Strong correlation with overall market cycles
Less reliance on marketing
Data source: Kaiko
Memecoin’s trading is primarily speculative, and has become more predictable this year, forming patterns that have attracted significant volume and liquidity, diverting the market away from “classic” coins, especially given the current lack of a dominant or novel narrative for Web3.
It is worth mentioning that according to the 1% market depth data of US exchanges, the liquidity of Meme tokens reached an all-time high of $110 million last week. Large-cap Meme tokens such as SHIB and DOGE still dominate, with more than 70% of the market depth.
However, their market share is gradually decreasing, showing that investors’ interest in small-cap tokens is increasing.
Where are we now?
Currently, more than 50% of the volume on Solana comes from Memecoins. On BNB, it’s closer to 45%, and on Base it’s about 25%. These are already significant percentages.
Data source: Dune
However, history tells us that by the time markets are busy pushing a narrative following a price move, it is often too late.
In my opinion, the memecoin market has already reacted to the rise of Bitcoin. As long as the price remains around $90,000, I think it is unlikely that there will be a new surge in mature memecoins - we can call them "cult coins" to avoid confusion with the 3 million tokens created on Pump.fun this year.
Yet, retail investors, always keeping up with trending topics, are still riding the train, anticipating a journey to Valhalla.
Source: @_kaitoai on X
The main problem is not just that most people got on board too late recently, which is common to all narratives. The real problem is that many retail investors are piling into new Memecoins, which are often more likely to bring losses than gains.
As a result, new users suffered, causing further user onboarding to stagnate. For the average user of Web2, the difference between Memecoins and classic coins was almost negligible; in their eyes, it was all just code. As a result, this poor experience affected all areas of Web3.
To be clear, I have nothing against the “cult coins” that have established market share – the established memecoins. They do have a lot of advantages. However, I think we should stop lumping together good projects with the poorly designed lotteries on Pump.fun. Let’s correct that.
Final Thoughts
If you are an experienced memecoin trader, you can continue to execute your strategy, but be aware that the market may be overheated.
If you’re new to meme coins and are feeling a strong FOMO, consider putting a small, manageable portion of your portfolio toward experimentation, focusing on established “cult coins.”
Unless you know how to win in the market, you should avoid participating in coin offerings. Here is an important rule: if you don’t know how to win the game, don’t participate.
