VC Perspective on the Memecoin Craze: A New Investment Battlefield or a Liquidity Exit Trap?

TL;DR

1. Memes went through a slow budding phase from 2013 to 2019, followed by a chaotic period of rapid changes from 2020 to 2022, and finally welcomed a period of rapid development from 2023 to 2024, officially gaining widespread recognition and a solid audience base as a singular track.

2. The average daily turnover rate of Meme is about 11%, whereas DeFi is 5%, Layer2 is 7%, and Layer1 has an average daily turnover rate of 4%. This ratio not only highlights the high liquidity of Meme but also indicates that users have a higher interest and trading frequency in Meme.

3. As of the end of the third quarter of 2024, the market share of Meme in the entire cryptocurrency market has increased from 0.87% two years ago to 2.58% now, and there is still a growing trend. If we conduct a simple linear regression simulation, this share is expected to reach 3.54% in 2025 and 7.81% in 2030.

4. Meme is a leveraged Layer 1, which means that when the market conditions improve, there will be a price increase of about 5 to 10 times for Layer 1.

5. Animal-themed Memes and Cult culture Memes are types that are suitable for long-term attention. In contrast, other categories of Memes are often related to short-term trends, and their popularity and attention may rise quickly and then decline.

In 2024, the industry and market are undergoing a drastic reshuffling. Against the backdrop of many VC-backed projects performing poorly after their launch, Meme is rising against the current, becoming a new force that cannot be ignored. The rise of the PvP model, the wealth effect brought about by single coin critical hits, and the Solana platform, which is extremely friendly to Meme, have all showcased their unique brilliance this year. The new generation of Meme representative, Murad, has quickly become a popular figure in the Meme community through his Supercycle speech. However, behind this Meme craze, what changes has Meme actually undergone? From the VC's perspective, how should we participate? These questions are worth our in-depth exploration.

Meme Market Overview: Origins, Evolution, and Market Data Analysis

Origins and Impact

Meme, as a cultural dissemination phenomenon, is closely linked to human history. Originating from early social languages, beliefs, and customs, it spreads within groups through imitation and learning. The advent of the internet has greatly accelerated the dissemination of Memes, which quickly spread among users in the form of images, videos, text, and emoticons due to humor, satire, or resonance. Memes fulfill people's needs to express emotions, share viewpoints, and establish resonance in social interactions, reflecting social trends, group psychology, and cultural changes. Their dissemination and popularity are influenced by factors such as content attractiveness, dissemination environment, community acceptance, and KOL influence.

In Web2, meme culture mainly originated and developed on the two platforms of 4chan and Reddit. 4chan is the birthplace of the popular meme Pepe the Frog, where a large number of Pepe memes and related derivative culture content are gathered. At the same time, 4chan is also a breeding ground for Boy's Club comics, providing us with an important perspective for understanding meme culture. Reddit, on the other hand, has nurtured classic memes like Dogecoin and Success Kid. Thanks to the active community atmosphere and solid user base of these two platforms, they remain the birthplace of many new memes to this day. In addition to these two platforms, other popular social media platforms ( Twitter X and Telegram, etc., ) have also given rise to some popular memes. For example, dogwifhat, an image of a dog wearing a pink knit hat, has created a "hat" totem culture in the community from early on with its unique image, prompting many fans and celebrities to share related dog hat images.

Evolution and Development

Starting from Web2, obsessed with Web3. In this article, we collectively refer to Meme and its related currencies as "Meme" without further distinction. Reviewing the development history of Meme, we notice that it was not prominent in the early days and did not receive enough attention. Referring to the cyclical changes of bull and bear markets in the industry, we can divide the development timeline of Meme into three stages: the budding period ( from 2013 to 2019 ), the chaotic period ( from 2020 to 2022 ), and the rapid development period ( from 2023 to 2024 ). By consulting historical snapshot data from CoinMarketCap, single currency data from Coingecko, historical information from search engines, and social media content, we can gain a more comprehensive understanding of the evolution of Meme.

As of December 31, 2019, during its embryonic stage, Dogecoin was the only Meme cryptocurrency ranked 34th in the list of the top 100 cryptocurrencies by market capitalization. Looking back from 2013 to 2019, Meme cryptocurrencies did not hold a significant position in the market. During this period, the industry was undergoing rapid infrastructure development, with everyone exploring various new concepts. The mainstream new cryptocurrencies were usually those payment public chains with more efficient transaction processing capabilities and faster confirmation times, or new public chains equipped with powerful smart contract functions. For Meme cryptocurrencies, the challenges lie in the fact that they not only require high costs to establish their associated carriers but also face difficulties in building liquidity, resulting in low trading volumes and challenges in gaining widespread support from centralized exchanges. Therefore, during the embryonic stage of Meme cryptocurrencies, aside from Dogecoin, which features the "Doge" meme and has a significant viral effect, there were not many other Meme cryptocurrencies that could survive in the market.

Since the chaotic period starting in 2020, more specifically from August 2020, the wave of IDOs triggered by DeFi Summer has allowed people to build liquidity on-chain at low costs, provide trading, and quickly create trading scenarios. This has enabled the low-cost issuance of tokens, allowing them to circulate directly in the secondary market without being listed on exchanges, giving rise to many on-chain Memes. During this period, the surviving Meme coins include SHIB, FLOKI, and PEOPLE. However, these early Meme coins did not receive much market attention, and their popularity was mainly based on speculative concepts. Additionally, the popularity of Memes during the chaotic period often arose in the context of excess industry liquidity; they typically appeared as the final leg of a relay race after multiple sectors had taken turns rising. It is worth mentioning that Memes also gained widespread attention during this period due to their association with celebrities, especially Elon Musk's continued endorsements of Dogecoin in 2021, which not only caused significant volatility in Dogecoin's price but also propelled Dogecoin to new levels in terms of market capitalization, leading to a significant expansion of the community.

With the arrival of 2023, the craze for Meme coins continues to heat up, giving rise to a variety of Meme coin types, such as BONK, PEPE, CHEEMS, the Cult culture-related BITCOIN(HarryPotterObamaSonic10Inc) and SPX(SPX6900), WIF, and MOG, among others. During this period, the types of Meme coins began to become more refined, with other public chains like Solana also emerging. By 2024, the development of Meme coins entered an accelerated phase, with new coins such as BOME, lowercase NEIRO, and GOAT continuously emerging, each with its own characteristics. Meme coins have officially gained widespread recognition and a substantial audience as a distinct track.

By analyzing the market capitalization share and performance data of the top 600 cryptocurrencies from 2013 to 2024, we can clearly see the growth of Meme's market capitalization as well as the expansion of its categories and quantities. During this period, Meme's market capitalization not only achieved significant growth, but also its types and quantities increased. As of the end of the third quarter of 2024, Meme's market capitalization share in the entire cryptocurrency market has risen from 0.87% two years ago to 2.58% now, and there is still a trend of continuous growth. If we conduct a simple linear regression simulation, this share is expected to reach 3.54% in 2025 and 7.81% in 2030.

Perhaps we once doubted whether Meme was just a fleeting phenomenon, quickly fading into silence after the craze. However, as we study and understand Meme, we believe our perspective has shifted. Meme will not only not disappear, but will continue to innovate, with new leading Memes possibly emerging in every era cycle. However, behind these dazzling leading Memes lies a harsh reality, reminding us that we must always remain calm and clear-headed.

Market Data Analysis

By analyzing the development and historical data of Memes, we can roughly understand their development trends. Thus, studying the current market landscape provides us with an intuitive perspective to observe changes in market hotspots and the flow of funds. Below, we further explore the macro indicators of the Meme sector, including core indicators such as market capitalization, trading activity, and daily trading volume. These analyses not only reveal the latest dynamics of the Meme sector but also showcase its future development trajectory.

Market capitalization and quantity changes: The changes in the market capitalization and circulating quantity of Meme can reflect the market's demand and acceptance level. Although some Meme tokens have a low market capitalization, the increase in the number of new Memes indicates that the community's interest in the entire sector is growing. Compared to other sectors (Layer1/Layer2/DeFi), Meme has been far ahead in terms of total market capitalization and the number of new additions over the past two years.

Trading Activity: The trading activity and turnover rate of Meme are usually higher than those of other sectors. According to CoinMarketCap data, the overall market capitalization of Meme tokens is about $50 billion, with a daily trading volume of approximately $5 billion, which is significantly higher than that of other sectors. On average, the daily turnover rate of Meme tokens is around 11%, while the daily turnover rate for DeFi is about 5%, Layer 2 is around 7%, and Layer 1 is 4%. This ratio not only highlights the high liquidity of Meme but also indicates that users have a greater interest and trading frequency in Meme. For Meme tokens that are above the sector level, especially those with larger trading volumes, they often become targets of market capital pursuit.

New Meme Coins' Price Increase and Low Success Rate: New coins are constantly emerging in the Meme market, with their price increases sometimes even surpassing mainstream cryptocurrencies like BTC. This indicates that the Meme token sector has high volatility and speculative opportunities. However, among the numerous new Memes, taking Pump fun data as an example, less than 2% of the successfully launched Memes have made it, and only 0.23% maintain a market value above 1M. This means that the probability of surviving the test of time is extremely small.

Massive trading volume and new users: Memes can bring in massive trading volumes and have a relatively loyal user base. Therefore, for CEX, listing meme tokens can become an important strategy to attract traffic and users. Taking the Binance spot market as an example, 20% of the trading pairs in the top 30 by trading volume are memes.

Blue Chip Memes Scarcity: Blue chip level Memes are relatively scarce. Faced with a vast number of hundreds and thousands of Meme tokens, those truly worthy of being called blue chip are less than 1%. Taking the Memes recorded on the Coinmarketcap website as an example, although new Memes are emerging continuously in the market, few can withstand the test of time and eventually stand out. In addition, the market capitalization distribution of the Meme sector also shows a significant 80/20 rule: the market capitalization of the entire sector is primarily driven by less than 10% of the top Memes. This highly concentrated market capitalization distribution undoubtedly increases the difficulty of finding true value investments in the Meme space. If participating in Meme investment from a VC perspective, this is akin to venture capital.