Many people are calling this year 'The Year of Memecoins.' In this article, the author shares insights on the current memecoin market, analyzing its main drivers and unexpected risks.
Author: Stacy Muur
Translation: Plain Blockchain
In the past few weeks, memecoins have overshadowed all other Web3 topics, making ordinary users feel that the meme track is the only way to achieve good returns.
Following the gains of $PNUT, $PEPE, $BONK, $BRETT, and several other memecoins, it’s no surprise that as memecoins hit their largest daily trading volume and the 'meme' category becomes increasingly popular, they attract attention.
But is this risk worth the reward? Is the memecoin market overhyped?
1. The Current State of Memecoins
Are memes really the mainstream topic of the year?
If you speak to someone who has been involved in the Web3 market for at least five years, and ask them how they define 2024, they will likely say it is 'the year of memecoins.'
Many people are calling memecoins the best performers of the year, and there are data and rankings to support this. But does this really reflect reality?
1 Month Industry Performance, Source: Artemis.
If you analyze the industry performance year-to-date, the data may tell a different story. For instance, on Artemis, the RWA index (including Ondo, Mantra, Clearpool, and Maple) leads with a 1900% increase, while memecoins grew 258% and Bitcoin grew 104%.
Moreover, understanding which memecoins are considered is also crucial. The memecoin index on Artemis currently only tracks the 19 largest memecoins.
The category rankings on CoinGecko face another issue: many memes belong to multiple categories, so some strong gainers may significantly exaggerate the 7-day performance across multiple categories.
Source: CoinGecko Categories
To understand why I see it as a problem, consider the Pump.fun ecosystem, which tracks 520 currencies. It looks very strong, being the second largest gainer this week, generating significant FOMO.
However, when you look at the rankings, you'll find that less than 20 tokens have seen a 7-day increase of over 110% (the average for this category), which accounts for only 3.8%. Moreover, less than 60 tokens (11.5%) have a positive weekly gain.
It's no longer WAGMI (We're All Gonna Make It), right?
From a performance tracking perspective, the main issue with memecoins is that their industry performance is often measured by the largest or most popular assets in the category.
This creates an illusion that the performance of memecoins has surpassed all other Web3 sectors. However, a more accurate statement is that leading memecoins have outperformed other categories.
This raises an important point: differentiating between mature memecoins and new memecoins, as they represent two completely different markets.
2. Emerging Memecoins
CoinGecko is currently tracking 520 memecoins on its Pump.fun dashboard. Since Pump's launch, 3 million tokens have been created.
This means that 99.982% of tokens are not tracked by CoinGecko, and we cannot obtain performance data for them.
Data Source: Dune
Meanwhile, Pump is attracting 50,000 to 70,000 new users daily, with total active users now exceeding 150,000.
Data Source: Dune
Here is some additional background information from my research conducted at the end of August:
Most top PNL addresses are token deployers, with only 3% of Pumpdotfun traders earning over $1,000 and 0.8% of traders earning over $10,000. Over 60% of traders are losing.
Data Source: @newtoneinsteinx on X
These are new memecoins. This bet isn’t very healthy, right?
For the average new memecoin trader, the main issue is distinguishing between 'new' memecoins and 'mature' memecoins. Most novice traders chase protocols in their early stages, hoping to replicate that 0.001% success story of mass adoption - like PEPE or BONK.
I don’t want to disappoint you, but the probability of dying from a lightning strike is 0.011%, a chance higher than that you might encounter.
3. Mature Memecoins
For mature memecoins, the outlook is much brighter. Their ability to reach a certain market capitalization is not due to venture capital support or specific valuation factors, but rather due to the strength of their community, a bit of luck, and strategic market management.
This may sound like a conspiracy theory, but I believe that most memecoins with a solid market share are not launched by random developers. There is usually a professional memecoin development team behind them, equipped with abundant resources for market making and marketing, which is also the reason for the success of these memecoins.
To clarify, I am not saying that all popular memecoins are the result of perfectly executed plans, but this likely applies to most memecoins.
Several logical factors explain the outperformance of mature memecoins compared to other Web3 sectors:
100% of supply is in circulation (no low circulation or high FDV)
No venture capital support (eliminating additional selling pressure)
Organic and active holding community
No product risk (no vulnerabilities, execution issues, or user acquisition problems)
Memecoin rotation pattern (one memecoin's rise drives others up)
Strong correlation with the overall market cycle
Lower reliance on marketing
Source: Kaiko
Trading memecoins is purely a speculative activity, and this year such behavior has become more predictable, forming some behavioral patterns that divert trading volume and liquidity from 'classic' tokens, especially in the current lack of mainstream or fresh narratives in Web3.
By the way, according to 1% market depth data from US exchanges, meme token liquidity reached a historical high of $110 million last week. Larger market cap meme tokens like SHIB and DOGE still dominate, holding over 70% of total market depth.
However, their market share is gradually declining, indicating that interest in smaller tokens is increasing.
Currently, over 50% of trading volume on Solana comes from memecoins; on BNB, this proportion is close to 45%; while on Base, it is about 25%.
That’s really a lot.
Data Source: Dune
However, history shows that when the market is busy promoting a certain narrative after price movements, it is usually too late. In my view, the memecoin market has long reacted to Bitcoin's rise.
As long as Bitcoin's price remains around $90,000, I doubt we will see those memecoins that have already gained a foothold (let's call them 'faith coins' to avoid confusion with the 3 million tokens created this year on Pump.fun) surge again.
However, retail investors often chase the last train of trends, and now they are still getting on board, hoping to reach 'Valhalla.'
The crux of the issue is not just that most newcomers arrive too late - this is a classic phenomenon across all narratives.
The real problem is that a significant portion of retail investors is jumping on the 'new memecoin' train, which is often headed towards 'Hell' rather than 'Valhalla.'
The result is that new users get severely burned, and further user entry stalls as a result. For ordinary Web2 users, the distinction between memecoins and classic tokens is minimal; they all appear as just a few trading codes to them. Thus, this poor experience is amplified across all areas of Web3.
It should be noted that I am not against 'faith coins' (memecoins with solid market share). They have many advantages. But I think we really need to stop using the same term to describe those excellent projects and those poorly designed 'gambling' tokens on Pump.fun. Let’s address this issue.
4. Summary: Some Suggestions
If you are an experienced meme coin trader, you can continue to stick to your strategy, but be aware that the market may have overheated.
If you are a newcomer to meme coins and feel a strong sense of FOMO, consider allocating a small portion of manageable funds to experiment, focusing on those 'faith coins' that have already been recognized by the market.
Avoid participating in new project launches unless you clearly understand how to win in them. There is a very important rule: If you don't know how to win a game, don’t participate.
Article link: https://www.hellobtc.com/kp/du/11/5539.html
Source: https://stacymuur.substack.com/p/are-memecoins-a-springboard-to-gains?utm_source=%2Finbox&ut m_medium=reader2
