What is the meme super cycle?
In this round of the market, it seems that meme's performance far exceeds other tracks, performing better than projects in public chains, modularization, and depin.
What is the reason behind this round of meme surges?
Regarding the reasons for the meme surge, most people believe it is due to fairness, concept, and community.
Let's first talk about fairness: retail investors believe fairness means everyone gets the same price for their chips because many memecoins are fairly launched, where everyone mints at the same time.
To further discuss concepts: Is the concept the core reason for a memecoin's rise? Not necessarily. The first counterexample is the ancestor of meme coins, Dogecoin. The concept of Dogecoin has changed over its development cycle. Initially, it was a satire of Bitcoin, later when Musk got involved, it became a potential payment coin for Tesla. After Tesla and Musk stopped discussing Dogecoin, it became a representative of the free community. Therefore, in the relationship between the success of Dogecoin and its concept, the concept is a follower of Dogecoin; the success of Dogecoin refined the concept, not the other way around. Thus, the concept cannot be considered the main reason for a memecoin's success.
The third community: the community seems to be the key issue because good meme coins definitely have very strong communities. However, the term community is not exclusive to memecoins; some project tokens also have excellent communities, leading their tokens to perform well.
Thus, we find that the first two of the three reasons are not direct causes; while the community is a direct reason, it is not exclusive to memes.
So what is the essence of meme coins rising?
A few days ago, I attended Token2049 in Singapore and listened to a presentation by a guy named Murad. In his presentation, he introduced the concept of a meme super cycle.
He believes that all projects in the crypto circle essentially issue virtual assets, with the ultimate goal of driving up the coin price. The only difference is that the coins issued by project parties require products and communities.
The project parties issue tokens related to their products and need to spend money to create these products. Therefore, they require founders, founding teams, early investors, marketing departments, KOLs, and others to help complete their products. Because they need so many people to develop their products, they often have to give away tokens early to obtain their services. Thus, when their tokens are issued, their market value is often already very high, compelling retail investors to passively choose these high-value tokens, which is what we commonly refer to as VC project tokens being absorbed by retail investors.
Memecoins do not require a product; communities can directly issue tokens. Regardless of whether products are made, the final outcome is still focused on building communities.
We only do two of the three tasks; the large number of people in the early stages do not need to do anything and do not need to obtain my early low-priced chips; we directly start from the community, and each of us comes on board and starts shouting.
In his theory, one can say that memes are project coins without products, while VC coins are meme coins with products. All tokens are meme coins; the only difference is whether you produce products or not. At this stage, whether or not you produce products is not important because even if you do, the products are likely to be useless since our industry has not reached the stage of large-scale application explosion.
So what causes memes to rise? This guy summarized it as simply doing a good job in the community! He also made a bold prediction, believing that in the short years to come, meme coins will continue to grow and become a trillion-dollar market, which he refers to as the arrival of the meme super cycle.
This theory seems very good; it has solved the questions we raised earlier, but it brings a bigger question: without the wing of a product, how high can meme coins really fly?
The reason VC coins create products is not just because they want to scratch an itch with six fingers; it is because creating real value through products is the sustained support for price increases. It’s just that their current products are not very useful. So they seem to fly with one wing like meme coins, sometimes even falling behind meme coins.
The meme super cycle is the disillusionment phase of crypto technology development.
At the end of the last bull market, meme coins were rampant; returns of three to five times were common, and ten to twenty times were frequent. When meme coins are active, VCs are on the decline. This year, meme coins have also performed well, but VCs have performed poorly, suggesting a cyclicality; the meme super cycle is the disillusionment phase of crypto technology development.
According to the technology maturity curve, the technological development stage of our crypto industry is currently approaching the disillusionment phase.
A brief introduction to this technology maturity curve. When something new appears, it enters the Innovation Trigger phase, also known as the Dawn phase. A significant feature of this period is that the number of participants is not too many. If everyone on the street knows about it, how could it be in the Dawn phase?
After the Dawn phase comes the peak period of excessive expectations. The typical feature of our crypto industry entering the peak phase is the flood of various narratives, such as public chains, Gamefi, Defi, and so on. At that time, a large number of talents and funds flooded into the crypto industry, marking the peak of FOMO. However, our cryptographic technology indeed has a significant impact, and thus, the transition from peak to disillusionment has occurred several times.
In precise terms, it is when a high-expectation narrative dissipates, there is always another narrative to fill the gap. Like a handsome scoundrel, although he deceives me each time, I still have expectations. However, the development of new technology industries is often leapfrogged, so the curve of our industry should be seen as containing many small cycles within a larger cycle.
AI is similar; during World War II, people's expectations for AI were also very high. The esteemed Shimon Peres, who won the Turing Award in 1975 and the Nobel Prize in Economics in 1978, once confidently guaranteed that machines would be able to perform all tasks that humans could accomplish within the next twenty years.
Now it's 2024, and AI is still not very useful. For jobs like video editing, community operations, and graphic design, we still need to recruit people everywhere. The so-called powerful ChatGPT still cannot replace any of our team members' work.
Thus, the AI industry is also very disillusioned; many expectations have not been fulfilled. Of course, the AI industry is also experiencing leapfrog development. After the narrative of general AI, which was thought to be able to do everything, collapsed, many cycles have occurred.
For example, the artificial neural networks developed in the 1990s, with a typical application scenario being character recognition, had a little jump; in the 21st century, AI began to develop deep learning, which is also the main research achievement of Hinton, who recently won the Nobel Prize in Physics, with the main application scenario being face recognition, which had another jump; now, represented by ChatGPT, the large language models' main application scenario is that AI can chat with people, which had another jump.
Looking back a few years at crypto entrepreneurs, each was shouting for a revolution. Some wanted to create the Nasdaq of the crypto industry, while others aimed to change world finance. And now? Each is calling for compliance and realizing practical application scenarios. This reflects entering the disillusionment phase, gradually transitioning into a stable ascending enlightenment phase. After a greater number of useful projects emerge, a highly productive stable phase will follow.
When we invest, there is also a psychological curve that aligns with this technology maturity curve. In this new road curve, the peak of excessive expectations is called the peak of ignorance; the disillusionment phase is called the valley of despair, and the steadily ascending enlightenment phase is called the slope of realization.
When a new technology, such as crypto, appears, it often enters a peak period of excessive expectations, where investors are often standing at the peak of ignorance. After technology enters the disillusionment phase, investors often fall into the valley of despair. When our crypto industry enters the disillusionment phase, our crypto investments will enter the meme super cycle, making everything seem like a meme.
What will happen during the disillusionment phase?
When the industry realizes that the hype has become too grand to fulfill, it will enter the disillusionment phase. For our crypto industry, all air tracks that cannot be realized may face complete collapse.
However, what is better about our crypto industry compared to other industries? In other industries, a complete collapse means total annihilation, leaving nothing behind. But in the crypto industry, when teams collapse, tokens still remain. Even if the business teams have all left, it's even better; it becomes purely meme.
For example, our Luna, after its founder was imprisoned for fraud, still had a market cap of 400 million USD, and this was after the team issued a new token. The previously spiraled Lunc had a higher market value, at 600 million USD. Together, they amount to a billion USD, which constitutes a super meme.
This is the ultimate essence of our meme super cycle! Therefore, during the disillusionment phase, it does not necessarily mean that a large number of new memes will appear. Instead, many VC coins become meme-like. It can even be said that for most practical VC coins, being able to become meme-like is a success.
Many viewers may see that with Trump’s election solidifying, Bitcoin's price has returned, suggesting there might be a wave of explosive bull markets next year. Big Beauty has a bold judgment: according to the development rules of our crypto industry, we are about to enter another disillusionment phase, and those tokens from application scenarios that haven't taken off may become meme-like. But everyone should not panic; meme-ification may not be a bad thing, and may even be a good thing. This is the magic of our crypto industry!
According to professional financial terminology, the value support for the meme-ification of these so-called value coins comes from financial nihilism.
What is financial nihilism? It refers to projects like Luna/FTT that have been discredited, and even their founders have been imprisoned, yet their tokens still have prices. The price of a token does not need to have any meaning; this is financial nihilism.
The four disillusionment cycles of crypto.
Our crypto industry has actually gone through several disillusionments from the start until now. Because there were not many practical application scenarios in the early days of crypto, it can be considered that everyone was a meme, and Bitcoin was the biggest meme.
In previous disillusionment phases, there were mutual influences with Bitcoin's halving cycles. The principle is this: when Bitcoin's price rises, various news floods in, attracting everyone's attention. At this point, many people become passionately naive, holding excessive expectations for themselves and crypto, which leads them to start projects. However, once the projects are underway, they find implementation difficult, thus falling into despair. The data shows that project activities begin to wane, and the fundamental difference between so-called VC value coins and meme coins is the activity of the project parties. If the project parties are not active, VC value coins will become meme-ified.
The first disillusionment phase began in 2009 and lasted until 2012.
The start of this cycle is marked by the birth of Bitcoin. In 2011, Bitcoin's price, developers, social activity, and other indicators reached a small peak. For example, Litecoin in 2011 and Ripple in 2012 initially claimed to optimize based on Bitcoin. Now, Litecoin has become stagnant and is not much different from meme coins, with a market value of 6 billion USD.
Ripple has not become stagnant; it claims to still be active. However, its initial boast of being a global payment solution has actually been fulfilled by stablecoins. From a business perspective, it is just a meme. The crypto circle doesn't have much of a user base, but it doesn't affect Ripple's market value of over 50 billion! At that time, no one understood the law of meme-ification during the disillusionment phase. The founder of Litecoin sold out early and went back to work.
The second disillusionment phase is from 2012 to 2016.
The developers and project parties introduced in this second cycle were ten times those of the first cycle. Some project parties have already awakened, giving birth to Dogecoin, the king of memes today. The most prominent project of this cycle remains Ethereum.
However, from the perspective of memes, Ethereum is essentially a tool for launching memes. The competition among public chains still follows this pattern, whether it is Solana or Base, they are all madly launching memes on their own chains.
The third disillusionment phase is from 2016 to 2019.
The peak of Bitcoin in this round was in 2018, which was four years apart from the previous year.
In this round, there are more projects because of the maturity of public chains, leading to an explosion in ICOs. Similarly, many VC projects have successfully meme-ified. For instance, EOS was once the star project of that ICO wave, directly financing 4 billion USD, claiming to be the Ethereum killer. Now, no one would think EOS is an Ethereum killer, but it still holds a market value of 1 billion USD, definitely meme-ified.
ICP was once a star project that raised over 200 million from VCs and was touted as the Ethereum killer. Now, in the context of sustained rising activity in public chains, ICP's presence is hardly noticeable, yet it maintains a market value of 4 billion USD, having almost completely meme-ified. Four billion USD is quite an impressive project in the US stock market; after meme-ification, it has no performance pressure, which is a state many listed company bosses in the A-shares, Hong Kong stocks, and US stocks dream of!
The fourth disillusionment phase is from 2019 to the present.
The project parties and investors in this cycle have learned their lessons and mastered the cycle's rules. Thus, many project parties are eager to rush to the leading exchanges, knowing how to avoid bear markets and waiting for the bull market to issue tokens. Moreover, project listing/locking mechanisms have further disrupted the resonance with Bitcoin's halving cycle.
Therefore, even in the disillusionment phase, why is this disillusionment phase referred to as the super disillusionment phase? This is why we are witnessing the meme super cycle.
The fundamental reason is that this round of application projects has not created new value. The main industry progress this round has actually stemmed from Layer 2 and Depin, both of which are considered intermediate products. They are not truly usable products for C-end users, unlike the previous rounds of Defi/Gamefi innovations, which directly connected with C-end users. In this round, it is difficult for C-end users to participate, as the threshold is still high.
Moreover, Bitcoin reached a new high this year, but crypto developers and new projects have not exceeded the previous highs of 2022, marking a greater cycle of disillusionment. This is also the path our entire crypto industry must take to become usable for C-end users. Without the emergence of constructive applications like Layer 2 infrastructure, there is no fertile ground. Thus, this specific historical period has given rise to our meme super cycle.
What opportunities do we have?
If you are a value investor, in this round of disillusionment, some projects are slowly moving into the stable ascending enlightenment phase!
When such projects increase, the crypto industry will resemble the internet industry, breaking free from the cycle of repeated expectation collapses. Thus, this round of the meme super cycle may very well be the prelude to the crypto explosion, entering a stable high-yield phase.
According to A16Z's October report for 2024, the scenarios emerging in crypto now include: public chains, Defi tools, and stablecoins.
Public chains
Thanks to the active trading of various memes, the growth rate of active on-chain addresses is quite good, with monthly active addresses reaching 220 million, which is relatively similar to the early trends of the internet. Based on user scale, today's crypto industry is equivalent to the internet in 1998.
One cannot help but marvel at the rapid pace of technological development. In 1998, the internet bubble had not yet burst. By 2024, the crypto bull market bubble has already burst twice. Fortunately, public chains, as the largest narrative in our crypto industry, are still experiencing user growth, and the tokens of leading public chains will survive in this anticipated disillusionment meme super cycle.
However, this year, many active on-chain addresses have already migrated to other chains. The active addresses in the Ethereum ecosystem account for only 24%, which is less than a quarter. Most Layer 2 project tokens that were hugely popular in the past two years may turn into meme coins next year.
Defi tools
Besides public chains, various defi tools supporting meme coin trading will also perform well. Not only is the on-chain trading volume continuously increasing, but it now accounts for over 10% of the crypto trading market share.
Stablecoins
Stablecoins have become the most recognized use case of crypto in recent years. In meme trading, stablecoins also serve as the pricing unit for meme coins.
Currently, the average cost of cross-border transfers in USD through SWIFT is 44 USD, but using crypto for transfers incurs no fees at all; it's incredibly advantageous.
Moreover, the scale of stablecoin transfers has surpassed that of Visa and PayPal this year, second only to interbank clearing systems like the Federal Reserve's Fedwire and ACH, indicating that it has completed the industry's Product Market Fit.
It's worth emphasizing that due to compliance issues, major financial institutions currently cannot issue interest-bearing deposit tokens. If Trump is elected and removes the compliance barriers from the SEC, interest-bearing stablecoins may experience another significant explosion.
However, looking at Bitcoin's value storage function, with the introduction of spot ETFs, it has been recognized by mainstream institutions like BlackRock. The stablecoin has also been proven as a use case, especially as the number of crypto addresses increases and on-chain performance improves, leading to greater usage.
Defi tools/performance public chains and other scenarios have also accumulated in this round.
Of course, many friends will ask, what if I just speculate on memes? This is the operational rule of the disillusionment phase. We need to understand that achieving success often comes at a cost; every day, thousands of memes appear, and only the few that perform best can be remembered.
When everyone wants to be a meme coin to make money, who will be the paying customers?
In such situations, Big Beauty still recommends that everyone mix more in communities and build, striving to become core members of some enthusiastic communities, learning to earn money from the meme industry.