【Thoughts on meme season and the future market】
Although the market is quite bullish now, to be honest, I don't think the sustainability of the meme season will be too long. At least the market capitalization of the meme sector will not be as inflated as Murad's. After the meme market participants disperse, the overall altcoin market may face a bear market comparable to the collapse after the 2017 ICO wave.
This bull market clearly lacks enough narrative to attract external capital. Since the development of Ethereum smart contracts in 2015, decentralized computing platforms and applications have provided plenty of imagination space. But after nearly 10 years of industry development, we now have dozens of public chains and Layer 2 solutions, as well as countless infrastructure. However, we can count on one hand the number of DApps with over 100,000 DAUs, and most of them are speculative or trading-related applications. Instead of seriously reflecting on the problems facing the industry, everyone just started buying meme tokens in droves after Murad's Token 2049 shilling, simply because the token distribution seems "fair" and meme tokens have no P/E ratio concept, so their valuation has no ceiling. They don't care about decentralization, Web3, or mass adoption - they just want to make money.
Memes have value in terms of cultural dissemination and identity, but when the entire industry is talking about memes, and top-tier exchanges are listing low-cap, high-risk meme tokens for traffic, it indicates some fundamental problems in the industry. Although the market hasn't crashed yet, everyone is just turning a blind eye. In fact, each participant is waiting for the right moment to quietly exit the noisy party. Last time, Musk shilled Doge, and this time the meme tokens are the crypto industry's own infighting. After the collapse of Silicon Valley Bank and FTX, regulations have become stricter, making it more difficult for off-chain capital to enter Crypto. The attributes of BTC ETF inflows are too different from memes, limiting the spillover effect. If there are no new entrants to take over, the sustainability of this meme rally will be even shorter than expected.
During my recent trip to Dubai, I chatted with some industry insiders, and we all noticed something amiss. But from the perspective of exchanges, media, projects, or VCs, it's really hard to voice this "something amiss". After several high-valuation blue-chip projects crashed soon after their listings, speculative capital needs an outlet. Murad's speech opened Pandora's box, leading the crypto world from idealism to nihilism. The super-high returns in the 2021 bull market's primary market have forcibly rationalized the high valuations of projects. From an external perspective, how can a project with only a prototype and no revenue generation have a valuation of tens of millions of dollars in the primary market? Earlier this year, the market cap of $WLD even briefly exceeded OpenAI - what the hell is this?
This phenomenon continued until the 2024 bull market finally became unsustainable. When there are not enough new retail investors, the valuation illusion cannot last.
Nowadays, any kind of theme can spawn memes. Communities are digging up the names of celebrities' dogs and cats, and a single concept can be minted on 3-4 chains simultaneously, with endless debates over capitalization. Countless new projects are dying every day. How is this different from the 2017 ICO era, where any concept wanted to ride the blockchain hype and issue tokens? At least ICOs would still pretend to write whitepapers, find partners, and build impressive team profiles. Now, devs can just issue tokens with a single click, create a Twitter account and a Telegram group, and start shilling. At this rate, retail capital will be depleted even faster. Many meme projects with billion-dollar market caps have only a few hundred million in their liquidity pools. When the crash comes, I don't know what it will look like.
Where are we now? To be honest, I don't know. But I do know that when the bear market comes, the valuation of altcoins is very likely to face an even more brutal shakeout than the 2022 bear market, and meme coins will be no exception. In the late bull market, the most ambitious people will suffer the most. As a secondary trader, the short-term profit effect is there, so just go for it. But I've been thinking about how to exit this liquidity game early. Here are some of my thoughts:
1. Use the market cap ratio of meme coins to estimate the current level of market craziness (see my tweet on 10/10)
2. Use the app rank of moonshot projects to estimate the degree of off-chain capital inflow (the apps are new and lack data, but at least it can serve as a reference)
3. Closely monitor the ratio of total contract positions and spot trading volume to circulating market cap in the overall meme sector, with the former representing leverage and the latter representing turnover rate
4. Closely monitor when the Bitfinex ETH/BTC whale positions are unwound, as each unwinding usually leads to a crash in ETH/BTC, which may also drag down altcoins
Finally, in my subjective opinion, during the upcoming bear market, when memes completely collapse and altcoin valuations are reshuffled, BTC Dominance % will likely reach unprecedented highs in the past five years. But shorting memes and longing BTC Dominance % could be too risky if we encounter a late-stage rally, so I will choose to use no more than 3x leverage to systematically long the BTC Dominance % contract when market sentiment is most FOMO-driven.
That's it for the meme part. As for BTC, I'm relatively optimistic, but we can't be too ambitious either. If we see BTC as an AMM pool, the emergence of spot ETFs has significantly increased the liquidity of this pool, making it harder to pump and dump. Plus, option ETFs will also be launched later, further reducing the momentum of unidirectional trends (the sellers are whales who already have the tokens, so I won't go into details here). If Trump gets elected and triggers another wave, it won't be like the early 2022 surge. Without any special catalysts, I think breaking $100,000 will be quite difficult. However, in the event of a bear market, BTC may not crash as violently as in 2022 with the aggressive rate hikes, as there are no LUNA-like multi-billion-dollar implosion bombs in the current market (assuming no external black swan events).
Although I sound quite pessimistic, I believe in the resilience of the Crypto industry. The next cycle will see true innovation. Stay hopeful and keep the faith.
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