What is the meme super cycle?
In this market cycle, it seems that meme coins are performing far better than other sectors, outperforming projects in public chains, modularity, and Depin.
What is the reason behind this round of meme surges?
Regarding the reasons for the surge in memes, most people believe it is due to fairness, concepts, and community.
First, let's talk about fairness: Retail investors believe fairness means everyone gets the same price for the chips because many memecoins are fairly launched, and everyone mints simultaneously.
Let’s talk about concepts: Is the concept the core reason for a memecoin's price increase? Not necessarily. The first counterexample is Dogecoin, the progenitor of meme coins. The concept of Dogecoin has continually changed with its development cycles. Initially, it was to mock Bitcoin, but later, with involvement from Musk, it became a potential payment coin for Tesla. After Tesla and Musk stopped discussing Dogecoin, it turned into a representation of the free community. Therefore, in the relationship between Dogecoin's success and the concept, the concept is a follower of Dogecoin, and Dogecoin's success has driven the refinement of the concept, rather than the other way around. Thus, concept cannot be considered the main reason for a memecoin's success.
The third element is the community: the community seems to be the key issue because a good memecoin must have a well-managed community. However, the term community is not exclusive to memecoins; some project tokens with well-managed communities also see their tokens perform well.
Therefore, we find that the first two reasons among the three are not direct causes. While the community is a direct cause, it is not an exclusive reason.
So what is the essence of meme coin price increases?
A few days ago, I attended Token2049 in Singapore, where I heard a speech by a guy named Murad. He proposed the concept of a meme super cycle during his speech.
He believes that all projects in the crypto circle essentially issue virtual assets, and the ultimate goal is to drive up the coin price. The coins issued by project parties need products + communities.
The project parties issue tokens related to a product, and they need to spend money to create such a product. Therefore, they require founders, founding teams, early investors, marketing departments, KOLs, and others to help them complete their product. Because they need such a large group of people to develop their product, they often have to distribute tokens to these individuals early on in exchange for their services. Thus, when their tokens are issued, their market value is often already quite high, leaving retail investors with no choice but to passively select these high-value tokens, which are often the tokens of VC projects.
Memecoins do not need products; communities can directly launch tokens. Regardless of whether products are developed or not, the end result is always to build a community.
We only need to do two out of the three tasks; the large group of people in the early stages doesn’t need to do anything and doesn’t need to get my early low-priced chips; we can start directly from the community, and each of us can directly hop on board and start shouting.
Therefore, in his theory, one could say that memes are project coins that do not develop products, while VC coins are meme coins that do develop products. All tokens are meme coins, and the only difference is whether you develop products or not. At this stage, whether or not a product is developed is actually not important, because even if a product is developed, it is highly likely to be useless since our industry has not yet reached a point of widespread application explosion.
So, what are the reasons behind the rise of memes? This guy summarizes them as simply doing a good job with the community! He even made a bold prediction that within a few short years, meme coins will continue to grow, becoming a $1 trillion market, thus ushering in the super cycle of memes.
This theory seems very good and has solved the problems we raised earlier, but it brings up a bigger question: how high can a meme coin fly without the wing of a product?
The reason VC coins develop products is not because they want to scratch an itch with six fingers, which is redundant, but because the actual value created by products is the sustained support for the coin's price increase. It's just that their current products are not very useful. So they seem to be flying like meme coins, sometimes even flying less than meme coins.
The meme super cycle is the disillusionment phase of crypto technology development.
At the end of the last bull market, zoo coins were rampant, with threefold and fivefold returns being commonplace, and tenfold or twentyfold returns being common. When memecoins are active, VC investments decline. This year, memecoins have performed well, but VC coins have performed poorly, suggesting an alternating pattern; the meme super cycle is the disillusionment phase of crypto technology development.
According to the technology maturity curve, the technology development stage of our crypto industry has now reached the disillusionment phase:
A brief introduction to this technology maturity curve: When something new emerges, it enters the innovation trigger phase, also known as the dawn phase. A notable characteristic of this period is that the number of participants is relatively small. If all the grandpas and grandmas on the street know about it, how could it possibly be in the dawn phase?
After the dawn phase comes the peak of inflated expectations. The typical characteristic of our crypto industry entering the peak phase is the multitude of narratives flying around, like public chains, GameFi, DeFi, etc. At this time, a large influx of talent and capital enters the crypto industry; it is also when FOMO is at its highest. However, the impact of our crypto technology is indeed significant, thus the transition from peak to disillusionment has occurred multiple times.
Specifically, when a narrative with high expectations passes, there is always another narrative to take its place. It's like a very handsome scoundrel who deceives me every time yet still leaves me hopeful. However, the development of new technology industries is often leapfrogged, so the curve of our industry should encompass many smaller cycles within larger cycles.
AI is similar; during World War II, expectations for AI were also very high. When the great figure Sima He, who won the Turing Award in 1975 and the Nobel Prize in Economic Sciences in 1978, was budgeting during the 60s and 70s, he confidently guaranteed that machines would be able to perform all tasks that humans could complete within twenty years.
Now it's already 2024, and AI is still not very useful. We are still hiring people all over the world for jobs like video editing, community management, and graphic design. The supposedly amazing ChatGPT still cannot replace any member of our team.
Therefore, the AI industry also experiences disillusionment, with many expectations not being fulfilled. Of course, the AI industry is also characterized by leapfrog development. After the narrative of general AI, which could do everything, was disillusioned, many cycles have occurred.
For example, the artificial neural networks developed in the 1990s had a typical application scenario of character recognition, which made a leap; in the 21st century, AI began to adopt deep learning, which is also the main research achievement of Hinton, who recently won the Nobel Prize in Physics. The main application scenario is facial recognition, and here it made another leap; now, with ChatGPT representing large language models, the main application scenario is that AI can chat with people, marking yet another leap.
Looking back at crypto entrepreneurs a few years ago, everyone was shouting about revolutions. Some wanted to create the Nasdaq of the crypto industry, while others aimed to change global finance. And now? Everyone is calling for compliance and the realization of practical scenarios. This is a typical characteristic of entering a disillusionment phase, gradually moving into a steady climbing enlightenment phase, and finally entering a high-yield stable phase as useful projects increase.
When we invest, there is also a psychological curve that aligns closely with this technology maturity curve. In this new road curve, the peak of inflated expectations is referred to as the peak of ignorance; the disillusionment phase of collapsed expectations is called the valley of despair, while the steady climbing enlightenment phase is called the slope of enlightenment.
When a new technology, such as crypto, emerges, it often enters a peak of inflated expectations, where investors tend to stand at the peak of ignorance. After the 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, looking at everything as a meme.
What happens during the disillusionment phase?
When the industry realizes that it has overstated its capabilities to the extent that it cannot meet them, it enters the disillusionment phase. For our crypto industry, all air tracks that cannot be realized may face complete wipeouts.
However, what is better about our crypto industry compared to other industries? In other industries, encountering a complete wipeout means genuine destruction, leaving nothing behind. However, when the crypto industry faces a team wipeout, tokens still remain. Even if the business team has all left, it’s even better; it becomes pure meme.
For example, our Luna, after its founder was arrested for fraud, still had a FDV of $400 million, which was a coin reissued by the team. The previous version of Luna, which was destroyed by the death spiral, had an even higher market cap of $600 million. Together, these two add up to a billion dollars, which is the super meme.
This is also the ultimate significance of our meme super cycle! Therefore, in the disillusionment phase, it doesn't necessarily mean a large number of new memes will emerge, but rather many VC coins will become meme-like. One could even say that for most VC coins that have landed, becoming meme-like is a success.
Many viewers might see that Trump’s recent election has stabilized, and the Bitcoin price has returned, leading to speculation about whether there will be a violent bull market next year. The bold prediction is that, according to the development pattern of our crypto industry, we are about to enter another disillusionment phase, and tokens from unlaunched application scenarios may become meme-ified. But do not panic, meme-ification is not necessarily a bad thing; it might 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 those already discredited garbage projects like Luna/FTT, whose founders have even been imprisoned, yet their tokens still have a price. A token having a price does not require any significance; this is financial nihilism.
The four disillusionment cycles of crypto.
Our crypto industry has actually gone through several disillusionment phases from the start until now. In the early days of crypto, there were not many practical applications, so it can be considered that everyone was basically in meme mode, with Bitcoin being the biggest meme.
The previous disillusionment cycles have had mutual influences with Bitcoin's halving cycles. The principle is this: when the price of Bitcoin rises, various messages start to flood in, attracting everyone’s attention. At this point, many people embark on the peak of ignorance with high expectations for themselves and crypto, leading to project launches. However, once projects start, they often find that practical implementation is challenging, leading them into the valley of despair. Data shows that project activities begin to decrease; the fundamental difference between VC value coins and meme coins is the activity of project parties. If project parties become inactive, VC value coins become meme-ified.
The first disillusionment phase began in 2009 and lasted until 2012.
The beginning of this period is marked by the birth of Bitcoin, which reached a small peak in metrics like price, developers, and social activity in 2011. For instance, Litecoin in 2011 and Ripple in 2012 were both touted as optimizations based on Bitcoin. Now Litecoin has leveled off, being no different from meme coins, with a market value of $6 billion.
Ripple has not yet leveled off and claims to still be working, but its initial boast about global payments has actually been realized by stablecoins. From a business perspective, it's just a meme; the crypto circle actually has very few users, but that doesn't affect Ripple's market value of over $50 billion! At that time, no one understood the regularities of disillusionment phase token meme-ification. 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 the second cycle were ten times those of the first cycle. However, some project parties in this cycle became enlightened, giving birth to Dogecoin, the well-known meme coin, which is now the king of memes. The star project of this cycle is still Ethereum.
However, if you look at it from the perspective of memes, Ethereum is still essentially a meme launching tool. The current competition among public chains is fundamentally the same, whether it’s Solana or Base, they are all frantically launching memes on their own chains.
The third disillusionment phase is from 2016 to 2019.
The peak of Bitcoin in this cycle was in 2018, four years later than the previous peak.
In this round, there are more projects due to the maturity of public chains, leading to an explosion in ICOs. Many VC projects have also successfully meme-ified. For example, EOS was once the star project of that ICO wave, raising $4 billion directly and claiming to be the Ethereum killer. Now, no one believes EOS will be the Ethereum killer, but that doesn’t affect its market value of $1 billion; it has indeed become meme-ified.
ICP was once a star project that raised over $200 million in VC funding, also touted as the Ethereum killer. Now, under the backdrop of continuously rising public chain activity, the ICP project is hardly visible, but it does not affect its market value of $4 billion, which has essentially become completely meme-ified. Four billion dollars is also a significant project in US stocks; after becoming meme-ified, it faces no performance pressure, which is a realm that countless listed company owners in 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 of this cycle have learned their lessons and have grasped the regularities of this cycle. Thus, many project parties are rushing to get listed on major exchanges, knowing how to avoid bear markets and waiting for bull markets to issue tokens. Moreover, mechanisms like listing and locking further disrupt the resonance with Bitcoin's halving cycle.
Therefore, despite being in the disillusionment phase, why is this particular disillusionment phase referred to as the super disillusionment phase? This is precisely why we have welcomed the super cycle of memes.
The fundamental reason is that the current round of application projects has not created new value. The main industry progress in this round is actually from layer 2 and Depin, both of which belong to intermediate products. They are not truly C-end usable products. The innovations in the previous round directly connected with C-end users, whereas this round's innovations are challenging for C-end users to participate in, with high entry barriers.
Moreover, Bitcoin reached a new high this year, but the number of developers and new projects in crypto has not surpassed the pre-high of 2022, marking a disillusionment phase in a larger cycle. This is also the necessary route for our entire crypto industry to reach C-end usability. Without constructive applications like layer 2 infrastructure being developed, there is no fertile ground. Thus, at this particular historical moment, we have created the super cycle of memes.
What opportunities do we have?
If you are a value investor, some projects have already begun to slowly enter the steady climbing enlightenment phase in this round of disillusionment.
As more and more of these projects emerge, the crypto industry will resemble the internet industry, breaking free from the cycle of repeated expectation failures. Therefore, this round of meme super cycle is likely the prelude to a crypto explosion, entering a stable high-yield period.
According to A16Z's October report for 2024, the scenarios that have emerged in crypto are: public chains, DeFi tools, and stablecoins.
Public chains.
Thanks to the activity of various meme trades, the growth rate of active addresses on the chain is quite good, with monthly active addresses reaching 220 million, which is quite similar to the early trends of the internet. From the perspective of user scale, the current crypto industry is equivalent to the internet in 1998.
One can't help but marvel at the speed of technological development. In 1998, the internet bubble had not yet burst. As of 2024, the cryptocurrency bull market bubble has already burst twice. Fortunately, public chains, as the largest narrative in our crypto industry, continue to see user growth. Tokens from leading public chains are expected to survive in this anticipated disillusionment meme super cycle.
However, this year, many active addresses on the chain have already shifted to other chains. The active addresses in the Ethereum ecosystem account for only 24%, which is less than a quarter. Most of the Layer 2 projects that were very popular in the past two years may become meme coins next year.
DeFi tools.
Besides public chains, various DeFi tools serving meme coin trading will also perform well. Not only is the on-chain trading volume continually increasing, but it has also accounted for over 10% of the crypto trading market share.
Stablecoins
In recent years, stablecoins have likely become the most recognized use case for crypto. In meme trading, stablecoins will also serve as the pricing unit for meme coins.
Currently, the average cost of cross-border transfers in US dollars through SWIFT is $44, while transferring through performant chains in crypto incurs no fees at all, which is simply fantastic~
Additionally, the transfer volume of stablecoins has exceeded 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 achieved product-market fit in the industry.
It's worth emphasizing that due to compliance reasons, major financial institutions currently cannot issue interest-bearing deposit tokens. If Trump is elected and removes the SEC's compliance barriers, interest-bearing stablecoins may see another major explosion.
However, as we can see, Bitcoin's function as a value storage has been recognized by mainstream institutions like BlackRock with the listing of spot ETFs. The stablecoin, which has been validated as a use case, has seen an increasing number of crypto addresses and rising on-chain performance, leading to greater usage.
DeFi tools and performant public chains are also scenarios accumulated in this round.
Of course, many friends will ask, how about directly being a part of the meme trading? This is the operational rule of the disillusionment phase. We must realize that achieving success often comes at a cost, and now thousands of memes appear every day; only the best-performing ones can be remembered.
When everyone wants to make money as a part of the meme, who will be the one paying?
In this situation, I still recommend everyone to engage more in communities and build, striving to become core members of some enthusiastic communities and learn to make money from the meme economy~
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