Key Highlights:

• According to Bernstein analysts, the crypto market has been "forced to shift towards 'useless' meme coins" to avoid previous regulatory actions against functional tokens and NFT projects.
• However, with the regulatory environment expected to ease under the new Trump administration, analysts expect market liquidity to return to decentralized finance.

As the regulatory environment for major crypto markets relaxes, analysts at research and brokerage firm Bernstein expect market liquidity to shift from meme coins back to functionality-driven tokens, involving areas such as decentralized finance (DeFi), gaming, and Non-Fungible Tokens (NFTs).

The rise in meme coin activity in recent years has been a backlash against the regulatory crackdown on functional tokens and NFT projects under the leadership of former Securities and Exchange Commission (SEC) chairman Gary Gensler, "forcing the market to shift towards 'useless' meme coins to avoid regulatory actions," said Bernstein analysts led by Gautam Chhugani in a report on Monday.

However, with the Trump administration's nomination of former crypto-friendly regulator Paul Atkins to lead the SEC (pending Senate confirmation), and the crypto-friendly Republican commissioner Hester Peirce launching a new crypto working group at the agency, the regulatory landscape is starting to change. The analysts noted that the shift in regulatory stance is reflected in the SEC's in-principle agreement to drop its securities law violation case against crypto exchange giant Coinbase, as well as the agency's closure of its investigation into the NFT marketplace OpenSea last week.

"A lot of blockchain activity has been driven by the meme coin issuances of politicians and celebrities," Chhugani wrote. "The recent failed case of Javier Milei's Libra coin, which faced insider trading allegations, has had political consequences." The analysts said this has led to an urgent "cooling down" of the meme coin issuance frenzy on Solana.

Where will the crypto market head as meme coin activity cools down?

Establishing a strategic Bitcoin reserve or treasury is one of the key priorities for the Trump administration in the crypto space. Coupled with strong inflows into exchange-traded funds (ETFs) and the continued strategic corporate treasury acquisitions, analysts believe the leading cryptocurrency Bitcoin's price will drive an upward push in the coming months, targeting $200,000 by year-end.

Analysts said another focus in the crypto realm is the tokenization of stablecoins and real-world assets, particularly in the context of expected regulatory policies on stablecoins and digital asset securities. They expect stablecoins to have the most direct impact on cross-border B2B payments, global interbank settlements, and remittances. However, as digital asset securities regulations become clearer, innovations around the tokenization of equity and debt will provide new avenues for corporate financing, while the growth of stablecoins will also be driven by the demand for them as the settlement currency for this tokenization.

Furthermore, analysts expect stablecoins to expand the total addressable market for crypto exchanges and broker/dealers, with trading volume growth led by new tokenized equity listings, and the demand for stablecoins also driving platform floating revenues. They anticipate Robinhood to be a key beneficiary of this trend in the next 24 months, as it integrates with crypto exchange Bitstamp and launches new products like staking, stablecoins, and derivatives.

Gautam Chhugani maintains bullish positions across various cryptocurrencies. Bernstein and its affiliates may receive compensation for investment banking services from Strategy. Bernstein's affiliates act as market makers or liquidity providers in Robinhood's stock.