Mint Ventures: Bottom-fishing in a bear market, avoid choosing Memes.
Author: Alex Xu, research partner at Mint Ventures
This issue of Clips comes from a discussion I had with other investors in a crypto community about the topic of Meme. In this article, I will elaborate on my own views to fully express my perspective.
The following content represents my interim views at the time of publication and may contain factual errors and biases. It is intended for discussion purposes only, and I look forward to corrections from other investment research professionals.
Buying the bottom in a bear market, don't choose Meme projects.
That sounds like a cliché, doesn't it? Who would choose to allocate for the long term in projects that have a lifespan ranging from a few months to a day?
However, in this article, the discussed Meme projects are the "blue-chip Memes" with significant market capitalization, such as Doge, Shiba, and Pepe, which have already gained entry into the major exchanges.
Some opinions suggest that "new-generation, low-market-cap Memes" like Pepe may replicate the trajectory of Doge and achieve a market capitalization of tens of billions in the next bull market cycle.
But in my opinion, when making cross-cycle allocations, it may not be a good choice to buy into it during bear markets.
The value source of Meme tokens
Meme is a phenomenon of cultural and informational self-replication, copying, and dissemination. Meme tokens refer to tokens of crypto projects that possess memetic properties. One of their characteristics is that the tokens themselves generally do not have direct value capture, while the projects often parasitize or derive from memetic intellectual property outside the crypto world. For example, Doge's Shiba Inu, Pepe the Frog, or lately the highly popular meme token named Bitcoin featuring Harry Potter, Barack Obama, and Sonic (four layers of Buff). In addition to famous personalities and popular culture, widely accepted viewpoints can also become sources of Memes. For instance, LTC has been regarded as "digital silver" compared to BTC's positioning as "digital gold." As a financial Meme, LTC inherits dual cultural influences from precious metal silver and BTC.
Unlike other business-oriented cryptographic projects such as DeFi and web 3 games, Meme appears to have no business model, but its business model and PMF (Product Market Fit) are very clear: to provide speculative means of investment with great imagination to the general public cryptographic investors.
When we say "to provide to the general investors," we mean that Meme's concept is simple and fresh, and its concept is either strange or conflicting, making it easier to capture the attention of the general public among massive information.
When we say "with great imagination," we mean that they do not have any actual business as a gravitational force for the token price. Their valuation is solely based on the word "consensus."
Even serious practitioners in the crypto industry cannot deny that "speculative profit" is an important, if not the primary, driving force in the crypto world. The ever-emerging Meme projects are the response to such demand and a PMF.
Compared to other traditional speculative targets, the advantages of crypto Meme tokens are also very apparent:
Unprecedented "accessibility". As long as you have an encrypted wallet and internet access, anyone from anywhere in the world can participate in its speculation without KYC, registration, or scrutiny. There are no identity barriers, and trading is available 24/7. In the traditional financial world, it is difficult to participate in the speculation frenzy like the Gamestop event in 2020-2021.
Transparency of information. Although it is still possible to be manipulated and influenced by Meme issuers in terms of code, funds, and rules, the transparency of token information, fund flow, and algorithms has greatly increased in crypto Meme. Compared to traditional black-box-style Ponzi schemes, the "information starting point" for speculation is more fair.
Wide variety, never lacking targets. The cost of launching and creating a Meme project is very low, and there is a constant stream of projects. "Opportunities are always abundant".
Unlike conventional web 3 business projects (such as DeFi), the intrinsic value growth of Meme tokens purely comes from the marginal inflow of attention and funds from future speculators (without derogatory meaning). For the former, we mainly predict the increase or decrease of its business, and for the latter, we need to speculate on the attention and funding of speculators in the future market.
This also means that the main task of the operators of Meme projects will be to attract and provoke the attention of the public, guide their attention in the right narrative direction, and try to promote the spread of FOMO emotions.
The problem is, not only is this difficult, but it may also not be in the long-term interest of the new generation of Meme project operators.
Meme tokens lack moats
The development of Meme projects has clear stages:
Ideation and design narrative: Challenge the mainstream, stimulate the fighting spirit, break the conventions in bizarre ways, but without alienating the masses
Early promotion: Attract the attention of early speculators, whether you can gain the recommendation of influential figures at this stage is a turning point for success or failure
Shaping and expanding FOMO: The wealth stories of early participants spread widely, greed attracts more people to enter the market, and people believe that what they are getting involved in is not the last one
Wider adoption: List on major exchanges, get rid of the label of being a "shitcoin," and become a truly popular speculative target
Maintaining attractiveness: Defend the market share of existing attention and speculative funds
Still in the early stages, the vitality of the indigenous dog Meme is fragile. Under the premise of large cycle configuration, this article mainly discusses the "Meme blue chips" in the 4th and 5th stages.
As mentioned earlier, the operation of Meme projects actually relies on the attention of the public. However, the transfer of attention is inevitable. The migration of attention is much easier than the transfer of user funds, usage habits, and preference for specific brands.
What's more important is that the cost of trying to establish a Meme is so low, which means that the existing Meme faces endless projects that compete for the attention and resources of speculators.
However, facing the attention competition from later Meme, the means for existing Meme to maintain their existing attention share are quite limited. Take Shiba as an example. It was born as a Meme in a bull market and gained market attention by a "sensational operation" that combines novelty and hot topics, such as airdropping 50% of its tokens to Vitalik, riding the Doge's rise, and securing the position of the "prince of the dog world".
However, after landing on major mainstream CEXs, its ability to gather attention and topicality gradually decreases, which is inevitable. Although the Shiba project team has taken frequent actions, including building its own Dex, L2, issuing NFTs, creating metaverses, and games, in an attempt to transition from a pure Meme to a business-oriented project, both the business performance and token price have been disappointing. Its DEX Shibaswap has only $21 million in TVL, and its token price has significantly underperformed the market over the past year.
Comparison of price trends of shib and BTC over the past year, source: coinmarketcap
It is not easy for Meme projects to transition into business projects. On one hand, business projects require detailed planning and execution of strategies, products, and technologies, challenging project management capabilities in different dimensions. Moreover, the clumsiness of "working hard" does not seem as appealing as the initial non-conformist, subversive, subculture, and high-profile nature of Meme projects, further eroding the gradually dissipating charm of Meme itself.
Unlike business projects that can build certain competitive barriers based on business models, Meme projects often lack means to maintain their intrinsic value. The dissipation of attention from speculators is inevitable, and working hard often produces counterproductive results.
The team behind Meme lacks the motivation to maintain it long term
In this era of scarce attention for speculation, the success of the new generation of Meme is rarely accidental. Many of them are planned and promoted by centralized clusters of forces. Besides funding and exchange resources, this force also requires timely assistance from KOLs and access to powerful business resources (PEPE, born less than a month ago, was included by opensea as one of the payment methods).
However, after the success of a Meme, the cost of maintaining its consensus and attention becomes increasingly high. For Meme teams, a smarter approach is to use a horse racing strategy to use the money earned from the previous Pepe to create more "meme experiments" of different styles and narratives, hoping for the birth of the next Pepe. And these newly created and marketed "Pepes" by themselves become competition for the attention of the "old Pepe".
Due to the anonymity of the core team behind Meme projects, their departure or stay in a project has far less burden compared to founders of other commercial projects, further worsening the situation of the old Meme project.
Counterexample: Dogecoin and Bitcoin
At this point, you might bring up a counterexample. "Doge, born in 2013, was able to make a comeback in the last bull market. Why can't Pepe, as the new generation meme, do the same?"
Doge is precisely a positive example of most memes whose vitality declines with each cycle. Because of Doge's excellent performance in the previous bull market, it was the result of Elon Musk's personal significant influence injected into it. The "project headed by the world's richest man Musk" itself is a new meme for Doge's takeoff. If we exclude Musk's support, explicit or implicit, for Dogecoin since 2019, we believe the meme elements of Dogecoin itself have already faded in the ever-changing narrative of cryptocurrencies.
So the question is, how many individuals in this world possess the same level of influence as Musk and will inject their influence into Pepe and revive the old memes in the next cycle? Such individuals with comparable influence to Musk are already scarce, and if we add the condition of "stepping forward to support a meme," the list of individuals meeting this dual standard is empty.
Litecoin, created in 2011, has a strong meme of being "silver to Bitcoin's gold." However, without the injection of new memes and influence, its performance in each cycle is gradually weakening.
In fact, the best counterexample to the claim that meme coins cannot survive cycles is not Doge but Bitcoin. As the originator of meme coins, it remains a favorite of both new and old cryptocurrency investors and an anchor for asset allocation. However, Bitcoin's meme power comes from its unique and scarce "legitimacy."
This "legitimacy" is something that no other meme possesses, and as a result, they are destined to face the attention struggles of new generations of memes.
The difficulty of capturing attention, the inevitable departure of initiating teams, and the bulk production of competing projects.
Investing in memes is ultimately an art that emphasizes "short, flat, and fast" techniques.
For more about memes, you can read: "Everything is a Meme"
