On Monday (November 4), Binance Research released a research report on MemeCoin (Understanding the Rise of Memecoins), but I found that few people seem to have the patience to read the contents of this report. So in this issue, let’s make a brief summary and interpretation of this report.
The full text of the research report is as follows:
(Image source: https://public.bnbstatic.com/static/files/research/understanding-the-rise-of-memecoins.pdf)
The report mainly provides some summaries and insights through several aspects such as Narratives, Cultural, Accessibility, Risks and Future Predictions.
Next, we will start to interpret this report:
In the two years from 2022 to 2024, MemeCoin's total market value in Total3 (total crypto market value excluding BTC, ETH and stablecoins) has more than doubled from 4% to 11%. However, it is worth noting that this percentage is still lower than the peak of 12% in 2021, when DOGE and SHIB reached their highest market values of 80 billion and 39 billion US dollars, respectively. As shown in the figure below.
So, why have crypto market participants been attracted to assets like MemeCoin in the past? Perhaps, fair launch, accessibility, and transparency are a few fundamental factors that contributed to this result.
Of course, there are other factors involved, such as:
1. Macroeconomic Background
One way to understand and explain the behavior of market participants is to look at the macroeconomics, because in this context, people will be driven to hype MemeCoin as a non-traditional financial instrument. For example, the Covid-19 crisis that broke out in 2020 has led to an unprecedented growth rate in the supply of fiat currencies by central banks around the world. Between 2020 and 2022 alone, the total supply of global fiat currencies increased by more than 25%, from $81 trillion to $102 trillion. As shown in the figure below.
Here we can simply explain that as the money supply expands, the prices of goods and services around the world begin to rise, which causes the well-known phenomenon of inflation. Taking the United States as an example, inflation in the United States has reached very high levels at that time, with a year-on-year growth rate (YoY, i.e. year-over-year) of 7% in 2021 and 6.5% in 2022. As shown in the figure below.
In this context, we can see from another perspective that in the face of the continuous depreciation of fiat currency, rational people will invest their assets in assets they believe to have long-term value to avoid the loss of value caused by currency depreciation. Among them, some assets are real estate (here refers to the United States). We can clearly see that since 1963, house prices have been in a long-term overall upward trend. At the same time, people's wages have not been able to keep up with the rise in house prices. Over the past few decades, the average number of years of wages required to buy an ordinary house has increased from 4.4 years in 1963 to 8.1 years in 2021, almost doubling. As shown in the figure below.
Likewise, in this context, certain types of "financial nihilism" may grow, especially among the younger generation. Because of continued high inflation and the depreciation of fiat currencies, many people may begin to lose their faith in tradition, and this sentiment seems to be spreading rapidly. In the crypto market, the buyer group of millennials and Generation Z (Gen Z, referring to young people born between 1995 and 2009) accounts for 94%. This is understandable. When the younger generation loses confidence in their ability to get rich slowly, they will want to get rich quickly through some unique means, and the crypto market just caters to this need of this part of people. As shown in the figure below.
2. The GameStop Legend
Those who have experienced the last bull market cycle should be familiar with Gamestop. The 2021 Gamestop Short Squeeze legend well reflects the change in young people's concepts. At that time, many young people had begun to question the traditional financial structure.
The rise of MemeCoin now seems to echo some aspects of the Gamestop saga, which demonstrated the ability of communities and cultural movements to create prices for financial assets. This community and cultural movement phenomenon is also the main reason for the emergence and explosion of a large number of MemeCoins. The difference is that MemeCoin seems to be more transparent and decentralized as a whole, because it is a new financial system shaped by blockchain technology and digital culture.
In the case of Memecoin, it may not generate any real value on its own, that is, its symbolic value is greater rather than driven by traditional valuation indicators, but it may resonate with similar investors because of its interesting narrative and culture.
In summary, the Gamestop phenomenon, and what we are seeing now with the MemeCoin phenomenon, can perhaps be seen as a younger generation of participants voting with their own capital against existing TradFi systems, fiat currencies, and broader socio-economic systems.
Next, we will continue to interpret the value of MemeCoin:
1. Fairness and transparency
Memecoin is a brand new asset type based on blockchain technology and Internet culture, which is completely free from the constraints of the traditional financial system.
In 2017, the emergence of the ICO craze led to the emergence of countless new teams and projects. At that time, many projects claimed to be building the next revolutionary product on the blockchain, thereby attracting more attention and participation from retail investors.
But at that time, many project owners sold investors only narrative stories or ideas, and did not even have corresponding products. They just made a PPT and started to attract retail investors’ funds. This also led to many scams at that time. Of course, some people also made their first pot of gold in that craze.
Today, the ICO craze is a thing of the past as ICOs later came under the disapproval of regulators around the world. Slowly, some ICO projects are turning to private venture capital rounds to continue raising capital. Especially in recent years, this type of venture capital financing has grown significantly, which has also led to the entire crypto project being shrouded in the problems and shadows of "low circulation, high FDV" during this cycle. Many new altcoins are facing a large supply release in the next few years, which will cause retail investors to become the takers of early venture investors.
Under this circumstance, retail investors gradually realized this problem, so they began to stay away from those VC projects with "low circulation and high FDV" and turned to MemeCoin, which seemed relatively fairer and more transparent.
Therefore, if the current trend continues, MemeCoin may continue to grow and continue to be popular with retail investors. A possible new result is that some institutions will also begin to participate in MemeCoin. After all, where there are a large number of retail investors, institutions need to go there to reap the benefits.
2. Easier to understand narrative
Compared to some altcoin projects with complex product support, MemeCoin seems to be more easily accepted by new retail investors or immature retail investors (without mature investment methods). Even a cute avatar and a group of people's CX can attract more newcomers to join and buy. For example, compared to Layer2 and DeFi, which are complex concepts and projects that are difficult for new users to understand, MemeCoin is easier for new users to accept and understand.
In other words, MemeCoin's user conversion time is much faster than that of technology altcoins. On a broader scale, this may allow the MemeCoin narrative to spread faster and wider, quickly attract more retail buyers, and build a community to further drive the speed of speculation.
On the other hand, this will also lead to extremely fast-paced market dynamics and new product adoption rates, with capital flowing into new MemeCoins faster than ever before. For example, WIF went from $0 to $1 billion in market cap in just 104 days. This speed took SHIB 279 days and DOGE 8 years to achieve.
At the same time, new MemeCoins are being created faster than ever before. For example, more than 75% of all MemeCoins currently on the chain were created in the past year. As shown in the figure below.
Next, let’s look at the risks:
1. Low project survival rate
From the data chart above, we already know that more than 75% of MemeCoin were born in 2023 and 2024. However, through another dimension of data, we can clearly see that 97% of MemeCoin has returned to zero (or close to $0 in trading volume).
Although some MemeCoins have been proven to stand the test of time, such as the well-known DOGE which has existed for 10 years and SHIB which has existed for 4 years, it is undeniable that the survival rate of most MemeCoins is currently very low.
In short, the rapid growth and speculative effect have made MemeCoin a very popular investment tool with huge return potential, but this effect is heavily dependent on market sentiment, and it is almost impossible to measure or evaluate their value through any fundamental evaluation methods, making MemeCoin extremely risky and an asset class with a high risk of loss.
2. Memecoin Conspiracy
While MemeCoin’s core value proposition is primarily reflected in its fair launch, accessibility, and transparency, we cannot deny that even so, it still cannot prevent retail investors from being ruthlessly exploited.
Some Cabals (also known as conspiracy groups), including some KOLs, are creating various MemeCoins for hype in order to seek and use retail investors to enter and take over. Although the transaction records on the chain are open and transparent, retail investors can use some on-chain tools or browsers to see the specific token holding addresses and transaction data, but as the saying goes, the devil is always stronger than the saint, and the conspiracy group still has ways to avoid being discovered by retail investors through some special means.
At the same time, the conspiracy group will also work with some KOLs to promote designated tokens, thereby triggering hype and FOMO sentiment on social media and creating the illusion of prosperous trading, in order to induce more retail investors to join and take over.
3. Lack of technological progress and innovation
Currently, the crypto industry’s capital and attention are overly focused on the MemeCoin space, and largely no longer focused on driving technological development and innovation. The current MemeCoin narrative, although it has spawned a large number of projects and a large number of so-called derivative products, many aspects of the hype surrounding MemeCoin are not much different from the past.
Recalling the DeFi Summer of 2020, as the Uniswap model became popular, various DEXs emerged on various chains, and the corresponding DEX tokens were used for farming, and eventually they were bearish and sold off when market sentiment changed. In the later stage of that stage, there was almost no meaningful differentiation or innovation, because many DEXs were forks based on the redesign of Uniswap V2.
This situation seems to have happened again in the current MemeCoin field. Although the new MemeCoin can bring some new creative themes and narrative stories, a large number of tokens of the same type may cause the market to gradually become saturated, with dog-animal themes. Take MemeCoin as an example. As new ideas and iterations occur rapidly, whether it is a dog wearing a sweater at the beginning or a dog wearing sunglasses later, the marginal effect of this iteration will be significantly diminished. The direct result of this is that in the absence of innovative technology or ideological advancement, MemeCoin will inevitably lead to continued inefficiency.
At the end of the article, let’s make some prospects and predictions about the future of MemeCoin:
Altcoins and MemeCoins have different levels and angles of appeal and target different types of investors (or speculators).
For people who invest in altcoins, they may be more interested in buying some form of value or the development potential and vision of the project corresponding to that value. For people who invest in MemeCoin, they may be more interested in buying something that can be transformed into some form of ideology, narrative story or social movement.
From a longer-term perspective, the success of an altcoin requires the creation and continuation of a useful, sufficiently differentiated product that actually has market fit, while the success of a MemeCoin may require the creation and continuation of a differentiated, unique narrative and story that appeals to a large enough group of people over the long term.
summary:
In general, the core principles of Web3 are: transparency, fairness, and decentralization. The rise of MemeCoin is an exciting new trend that at least proves that blockchain technology can unite everyone around the world.
But in the short term, retail investors may be more concerned about how to make money with MemeCoin. Here we make a brief summary based on the research report of Binance Research:
- Understand and study market sentiment
MemeCoin is more of a hype based on community and market sentiment. In this regard, we can use some on-chain tools that have been introduced in the previous MemeCoin series of topic articles by Hualihuawai, such as DexScreener, GMGN, Bullx, DEXTools, etc., to perform necessary on-chain filtering and mining work.
- Seeking tokens with high transparency
Fairness may sometimes be just a slogan. We need to use some channels or on-chain tools to find and analyze tokens with high transparency. For example, tokens issued directly on DEX usually lack transparency, and there may be a large number of snipers, insiders and venture capitalists waiting for retail investors to take over and sell them. In this regard, we can pay more attention to tokens that are fairly launched through launchpads such as PumpFun and listed on DEX (of course, this is not absolute, but relatively better).
- Appropriate diversified layout
As we mentioned above, the survival rate of MemeCoin is actually very low, so we need to diversify appropriately to avoid serious losses due to over-concentrated investment. In other words, even if you are gambling, never bet all on a single coin, because MemeCoin is very volatile and you may lose everything in the blink of an eye.
- Pay attention to unique narrative
Generally speaking, MemeCoin with a unique narrative story (such as the concept of combining AI and Memes some time ago) may be more likely to attract more users and quickly form a loyal community, which we need to stay ahead of. Moreover, the more concepts or stories that can be easily understood by most people, the higher the chance of success.
- Try to guard against conspiracy groups
Generally speaking, a sudden price change of a token is likely to indicate that someone is behind the scenes organizing a sell-off, especially if it is driven by KOLs. Don’t be too gullible in some KOLs’ calls and recommendations, and only pay attention to those KOLs you think are trustworthy. At the same time, try to use some on-chain tools to do some data analysis, and avoid participating in tokens with over-concentrated supply and signs of wash sales. As for specific identification tools and methods, there are also some related combing in the previous articles on the MemeCoin series of topics. Interested friends can search and review the historical articles.
- Prioritize liquidity issues
You can focus on the tokens with good liquidity in major platforms, which can largely avoid buying those scam coins. At the same time, pay attention to whether the liquidity is locked or destroyed. If the risk appetite is low, you can also consider buying MemeCoin that has been listed on CEX. Such tokens often have better liquidity and credibility. But one thing to remind you here is that MemeCoin in some wallet markets may have a brush volume. For example, a partner in the group reported that he actually bought Pixiu coins in the OKX Web3 market transaction volume ranking list.
Finally, always remember the two most important basic principles of trading: one is to protect the principal, and the other is not to touch if you don’t understand. Before you decide to buy any project, you must manage your position well and be sure to do DYOR (Do Your Own Research).
