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

Meme experienced a slow budding phase from 2013 to 2019, followed by a rapidly changing chaotic period from 2020 to 2022, and finally welcomed a period of rapid development from 2023 to 2024, officially gaining widespread recognition and an audience base as a single track.

The average daily turnover rate of Meme is about 11%. In comparison, DeFi is 5%, Layer 2 is 7%, and the average daily turnover rate of Layer 1 is 4%. This ratio not only highlights the high liquidity of Meme but also indicates that users have a strong interest in and trading frequency for Meme.

As of the end of the third quarter of 2024, Meme's market share in the entire cryptocurrency market has increased from 0.87% two years ago to 2.58% now, and it continues to show an upward trend. If we conduct a simple linear regression simulation, this share is expected to reach 3.54% by 2025 and 7.81% by 2030.

Meme is a leveraged Layer 1, meaning that when the market conditions improve, there will be an increase of about 5 to 10 times in Layer 1.

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 attention and popularity may rise rapidly and then fall back.

In 2024, the industry and market are undergoing a drastic reshuffle. Against the backdrop of many VC-backed projects performing poorly after their launch, Meme has surged against the tide, becoming a new force that cannot be ignored. The rise of the PvP model, the wealth effect brought by single-token crits, and the Solana platform's extreme friendliness towards Meme have all showcased unique brilliance this year. The new generation representative of Meme, Murad, has quickly become a hot figure in the Meme world through his Supercycle speech. However, behind this Meme craze, what changes has Meme actually experienced? From the VC's perspective, how should we participate in it? These questions are worth our in-depth discussion.

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

Origin and Impact

Meme, as a cultural dissemination phenomenon, is closely linked to human history. Originating from early societal language, beliefs, and customs, it spreads within groups through imitation and learning. The advent of the internet has greatly accelerated the spread of memes, which circulate among users in the form of images, videos, text, and emoticons, rapidly 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 appeal, dissemination environment, community acceptance, and KOL influence.

In Web2, meme culture primarily originated and developed on the two platforms 4chan and Reddit. 4chan is the birthplace of the popular meme Pepe the Frog, where a large amount of Pepe meme and its derivative cultural content is gathered. At the same time, 4chan is also a breeding ground for Boy's Club comics, providing us with an important perspective to understand meme culture deeply. Reddit, on the other hand, has nurtured classic memes such as 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 social media platforms with a large user base (such as Twitter X and Telegram) have also nurtured some popular memes. For example, dogwifhat, a meme featuring a dog wearing a pink knit hat, has formed a kind of "hat" totem culture in the community since its early days with its unique image, with many fans and celebrities sharing related dog hat pictures.

evolution and development

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

As of December 31, 2019, during its nascent stage, Dogecoin was the only Meme coin ranked 34th among the top 100 cryptocurrencies by market capitalization. Looking back from 2013 to 2019, Meme coins did not hold a significant position in the market. During this period, the industry was in a rapid infrastructure building phase, with everyone exploring various new concepts. The mainstream new coins were typically those with more efficient transaction processing capabilities and faster confirmation times in the payment public chain, or new public chains equipped with powerful smart contract functions. For Meme coins, the challenge is that they not only require higher costs to establish their attached carriers but also face difficulties in building liquidity, which results in low trading volumes and makes it hard to gain widespread support from centralized exchanges. Therefore, during the nascent period of Meme coins, aside from Dogecoin, which features the "Doge" meme and has significant dissemination effects, there were not many other Meme coins that could survive in the market.

The chaotic period that started in 2020, more specifically in August 2020, was initiated by the wave of IDOs triggered by DeFi Summer. The IDOs led by DeFi Summer enabled people to build liquidity on-chain at a low cost, provide trading, and quickly construct trading scenarios. This allowed for the low-cost issuance of tokens, circulating directly in the secondary market without listing on exchanges, which gave rise to many on-chain memes. During this period, the surviving meme coins included SHIB, FLOKI, and PEOPLE. However, these early meme coins did not receive much attention from the market, and their popularity was mainly based on speculative concepts. Additionally, the popularity of memes during the chaotic period often emerged against a backdrop of excess liquidity in the industry; they typically appeared as the final relay after multiple sectors had taken turns rising. It is worth mentioning that memes during this period also gained widespread attention due to their association with celebrities, especially Elon Musk's continued advocacy for Dogecoin in 2021, which not only caused significant fluctuations in Dogecoin's price but also propelled Dogecoin to a new level in terms of market capitalization, with the community significantly expanding.

With the arrival of 2023, the trend of Meme coins continues to heat up, giving rise to a diverse range of Meme coins such as BONK, PEPE, CHEEMS, the Cult culture-related BITCOIN (HarryPotterObamaSonic10Inc) and SPX (SPX6900), WIF, and MOG. 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 has directly entered an accelerated phase, with new coins like BOME, lowercase NEIRO, and GOAT continually emerging, each with its own characteristics. Meme has officially gained widespread recognition and a solid audience base as a distinct track.

By analyzing the market capitalization share and market performance indicators of Meme in the top 600 of the cryptocurrency market 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 its varieties and quantities have also increased. By the end of the third quarter of 2024, the market capitalization share of Meme in the entire cryptocurrency market has increased from 0.87% two years ago to 2.58% today, and it still shows a growing trend. If we conduct a simple linear regression simulation, this share is expected to reach 3.54% by 2025 and 7.81% by 2030.

Perhaps we once doubted whether Memes were just a fleeting phenomenon that would quickly fade into silence after the hype. However, as we study and understand Memes, we believe our perspective has changed. Memes will not only not disappear, but will continue to innovate, with new leading Memes possibly emerging in every era. However, behind these dazzling leading Memes lies a harsh reality, reminding us that we must always maintain a calm and clear mind.

Market Data Analysis

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

Market Cap and Quantity Changes: The changes in the market cap and circulating quantity of Meme can reflect the market's demand and acceptance level. Although some Meme tokens may not have a high market cap, 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 cap and new quantities in the past two years.

Trading Activity: The trading activity and turnover rate of Memes are usually higher than those of other sectors. According to data from CoinMarketCap, the overall market capitalization of Meme tokens is approximately $50 billion, with a daily trading volume of about $5 billion, indicating a level of trading activity that is far above other sectors. On average, the daily turnover rate of Meme tokens is around 11%, whereas the daily turnover rate for DeFi is about 5%, for Layer 2 it is around 7%, and for Layer 1 it is 4%. This ratio not only highlights the high Liquidity of Memes but also indicates a strong interest and trading frequency among users. For Meme tokens that are above the sector level, especially those with higher trading volumes, they often become targets for market funds.

New Meme coins' price increases and low success rates: New coins are constantly emerging in the Meme market, and their price increases sometimes even surpass mainstream cryptocurrencies like BTC. This indicates that the Meme token space has high volatility and speculative opportunities. However, among the numerous new Memes, for instance, based on Pump fun data, less than 2% of the launched Memes have been successful, and only 0.23% maintain a market cap above 1M, which means the probability of surviving the test of time is extremely small.

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

Blue Chip Memes Scarcity: Blue chip-level Memes are relatively scarce. Among the hundreds and thousands of Meme tokens, those that can truly be called blue chip are less than 1%. Taking the Memes recorded on Coinmarketcap as an example, although new Memes are emerging endlessly in the market, very 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 Pareto principle: the entire sector's market capitalization is mainly 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 field. If we participate in Meme investments from the perspective of VC, this aligns with the rule of thumb in venture capital known as the "2-8 rule": approximately 10% of successful Meme investments can offset the losses from other Meme investments.

Summary

Combining the recently acclaimed Murad speech in the Meme space, he predicts that the market value of Memes will reach $1T in the future, indicating a potential increase of 25 times. It is expected that more than 25 Memes will enter the industry's Top 100, and that VC will purchase blue-chip Memes, etc. Based on our statistics, this prediction is overly optimistic, as the current Memes, whether in terms of quantity or market value, have already fallen into