The popularity of memes is the end of the bull market丨Stablecoin market cap has shrunk by $7.3 billion this year!
In the crypto market, there is a saying that “the popularity of Memes signifies the end of a bull market.” Despite some objections for this characterization of Meme tokens, this notion is hard to ignore as the market cap of stablecoins has shrunk by $7.3 billion this year.
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Since 2021, Meme tokens like SHIB and Doge have gained significant importance in the crypto industry, becoming an essential part of the crypto investment landscape. The 50,000x rise of SHIB and 400x increase of Doge have created numerous wealth stories and driven significant traffic in the crypto sphere.
According to CoinGecko data, as of April 2023, the global cryptocurrency market cap is approximately $1.34 trillion. The total market cap of the Meme sector is about $20.8 billion, accounting for about 15%. After a bear market cycle, Meme coins like SHIB and Doge not only survived but maintained their top 20 market cap positions, and in some cases performed better than some so-called value investment projects.
Why does the popularity of Meme tokens become the “killer” of bull markets? We seek answers from history and financial inertia.
History has repeatedly told us that the heat of Memes is often a harbinger of an imminent market crash.
In May 2021, DOGE reached its all-time high, with a value of $0.74 per coin. The community collectively projected a target price of $1 for Dogecoin. However, what happened next is well-known — the market quickly entered a downturn, and currently, the price of DOGE is only about $0.074 per coin, just one-tenth of its peak value.
History does not always repeat itself, but there is a certain “cyclicality.” Whether it’s the frenzy of BRC, the carnival of ERC altcoins, or the bulk entry of KOLs issuing coins, these actions incite FOMO and fraudulent behaviors, failing to form a healthy and benign market.
More importantly, considering the unique narratives and community culture of Memecoins, most of them tend to be fleeting.
The issuance of BRC-20 tokens, thanks to the convenience of its process and the uniqueness of the token names, has become an extremely simple and low-cost endeavor.
Although market sentiment is high, many community users believe that a short-term market crash is imminent. After all, the last stop of many previous bull markets has been a “meme carnival,” which is why there is an increasing chorus in the market that “Memes are the killers of bull markets.”
However, Memes becoming the killer of bull markets is not due to any unique “magic” inherent to Memes. Instead, this can be explained by a clear financial inertia.
There’s a saying in finance: when the principal is small, big profits aren’t large; when the principal is large, small profits aren’t small. So the question arises, if you have several billion in cash, would you opt for a stable growth of 20%, or risk losing all the funds to pursue a tenfold return? Obviously, it’s the former.
The choices of large funds in a bull market are similar: stability is always the priority. When BTC is rising, why should funds be diverted to other coins? But when BTC is not rising or is moving sideways, large funds in a bull market will opt for high-growth hot sectors. The reason is that with less capital, the same return can be achieved, the risk is relatively controllable, and as a well-known “air coin” and creator of wealth myths, Meme, with a return rate that is tens of times higher than the average return of the cycle, becomes the first choice for large funds!
After the Meme heat subsides, funds start to withdraw. At this point, stablecoins like BTC and ETH are still in a market trough, and the trend hasn’t reversed. The funds must be in a wait-and-see state, with only a small amount flowing into the entire crypto trading market in a distributed manner. The withdrawal of funds, the reduction of circulation, and the slump of mainstream coins form what we perceive as the “crypto winter”.
So, during the bull market’s rise, the Meme market is sluggish; during the bull market’s decline, the Meme market is booming.
Finally, when funds are withdrawn, the bear market arrives, waiting for the next trend. These are all results of the inertia of capital flow.
Two major trends in the crypto market for 2023
From a macro perspective, it’s certain that the overall trend of BTC has not yet reversed. At the same time, the potential recession in the U.S. economy, the debt ceiling issue, the potential risks in banking, and geopolitical risks, do not support the possibility of risk assets becoming bullish in 2023. So, we need to wait for these uncertain factors to land before the market will flip.
Once these uncertainties are resolved and the market flips, we will consider switching positions primarily in BTC and ETH to the leaders in various tracks. At the same time, we will closely watch the ETH/BTC exchange rate, possibly making some sector rotations between ETH and BTC. Therefore, in the second half of 2023, we can closely monitor the big cycle trends in the market, and make big cycle moves based on the sector rotation of the big cycle and macro pivots.
In summary
The rise of Meme is mainly due to the beginning of capital switching tracks, moving from mainstream tracks to high-investment ones. When the market heats up, various speculations emerge. However, this should be viewed from both sides. On one hand, it means that project initiators believe that the current market heat can accommodate more projects to seize opportunities. Seeing profitable opportunities, funds will continue to enter the market, driving it to rise further. On the other hand, market competition increases, funds may become scarce, and imbalances may occur. In case a scenario similar to the “May 2021 MEME Stampede” occurs, a domino effect could be triggered.
