Bitcoin vs. Memecoins in the Current Market | CoinGecko

Bitcoin vs. Meme Coins

Bitcoin is crypto’s oldest asset and the digital era’s equivalent of gold – a bearer asset that allows holders to store their wealth over longer timeframes. Memecoins, on the other hand, are by nature highly speculative, running on attention and mindshare, and their sole utility is to make holders rich. How have such diverse assets become the leading players in the current cycle?

Key Takeaways 

• Societal and economic undercurrents are driving investors towards alternative stores of value and high-risk gambits.

• Bitcoin has cemented its role as the digital era’s gold, and the passive ETF bid from TradFi has enabled its outperformance, leading to an explosion of innovation on and adjacent to the network. 

• Meme coins have been the dominant vertical to date this cycle, and these leveraged plays on the underlying ecosystem, while being zero-sum, have proven that they are here to stay, and investors must adapt accordingly. 

Every cycle has its idiosyncrasies, and this cycle’s leading characters are Bitcoin and memecoins – assets that occupy polar opposite positions on the risk spectrum. Is this bifurcation a social commentary? Have VCs played a role in this increasingly fragmented and divided capital allocation?

*Note: This article reflects the opinion of the author and do not necessarily reflect the opinion of CoinGecko.

Gold: Bitcoin’s Predecessor 

While the above chart may look like a supercharged memecoin, it is, in fact, the yearly price of gold. Yes. A $16 trillion asset is currently in price discovery. Gold is a beautiful asset for macro investors. Considered a ‘safe haven,’ gold rallying paints a colorful but grim picture. Gold moving aggressively is almost always driven by the following factors: 

Gold’s massive rally points to one rather bleak conclusion. The market is sniffing out that the FED has pinned itself into a corner, and the government cannot stop spending. 

People have discussed the dollar collapse for decades and primarily point to 1971. Nixon took the world off the gold standard on August 15th, announcing that the United States would no longer honor dollars for gold. He gutted the international monetary system of gold, and the beginning of expansionary monetary policy began in earnest. Instead of hard assets, fiat currencies began to derive their strength from the issuer. No longer was fiat backed by anything except confidence. The other significant event in gold’s history was Executive Order 6102, signed by Franklin D. Roosevelt on April 5th, 1933. He needed an elastic money supply to help recover from the Great Depression. The demand to increase the money supply motivated the disentangling of fiat and gold in both events. Since these events, especially 1971, fiat money has, in simple terms, been a fugazi. Readers interested in the effects of this decision can observe several fascinating data points on WTF happened in 1971.

While many will call for a great devaluing, they are quick to forget that financial plumbing is outrageously persistent. Calls for the collapse of the dollar have been heard for decades. And increasingly, the limelight falls on what critics call the ‘national debt death spiral.’ One alarming statistic doing the rounds is that over the last 120 years, 98% of all countries where sovereign debt/GDP hit 130% ended up defaulting – the United States’ current debt-GDP ratio hovers at 120%, down from 132% in 2020. 

In short, gold has been surging because markets smell a rat, and confidence in the dollar is crumbling. The United States’ national debt has ballooned to such a level that it has become unmanageable, and interest payments continue to mount. Powell has a rotten job, beset on all sides. He cannot keep rates high due to the rising cost of servicing government debt, and this will likely be the primary motivation for cutting rates. Manage the debt burden, fight inflation, and avoid a recession – a tall order. 

The net result will be the same as always. The FED will turn the printer back on to service old debt, and the dollar’s value will diminish. However, they will need an excuse to do so. The losers in this trade are those holding dollars or Treasuries. At a high level almost every trade is either long or short the dollar. Gold’s impressive performance signals people want to short the dollar currently. But does this have to do with Bitcoin or memecoins? 

Bitcoin’s Value Proposition in the Modern Age

Bitcoin is the modern iteration of gold. Its fixed monetary policy and Austrian economic influence have seen it become another beneficiary of decreasing confidence in the dollar. While Bitcoin used to trade as a proxy of global liquidity levels (and still does to some extent), the entrance of institutional giants like Larry Fink has crystallized its role as a serious and acceptable store of value in the more traditional world of money. 

ETF Flows: The Exogenous Elephant in the Room 

Spot ETF inflows have been the leading dynamic in BTC’s impressive rise. Cumulative total inflows have already eclipsed $12 billion, and now combined Spot ETF issuers have a greater AUM than Grayscale, which acts as the last natural seller. Grayscale’s Bitcoin Trust. The leading character in the ‘widow maker’ trade and the final boss/ hangover markets must flush out to move forward meaningfully.

Bitcoin’s performance in this cycle is easy to understand. Spot ETFs mean anybody can buy BTC through a regular brokerage account, and Larry Fink’s seal of approval gave TradFi the greenlight that Bitcoin is a solid and respectable asset. Bitcoin enjoys the same tailwinds as gold, and the increasing popularity of ownership can be neatly summarized by quoting Fink: ‘A flight to quality.’ 

Interest in bearer assets that enable investors to store wealth over longer time frames will always exist. The increasing doubt surrounding the dollar, mounting geopolitical tensions, greater market accessibility, and a growing lindy effect (the longer something has existed, the greater the probability it will continue to exist) have all been fuel for the Bitcoin fire. 

Bitcoin’s overperformance in this cycle aligns with larger macro trends. The ETF was a watershed moment that investors have waited on for years, and this cycle it finally came true. Bitcoin outperforming should come as no surprise. It has unlocked the relentless passive bid informally called the ‘infinite TWAP.’ Are equities rigged to go up and to the right forever? Look at the S&P 500. It goes up constantly, and it is impossible to lose over a long enough time frame. Countless dollars flood in each month from ETF buyers saving for retirement, preserving and growing their wealth by holding stocks instead of cash. Bitcoin now enjoys this same uplift, albeit on a far smaller scale. 

A Strange Cycle? 

This chart was wildly accurate last cycle. But was the 2021 cycle an anomaly? People were locked inside, and stimulus cheques airdropped dollars to the public. Was that time really different? Unlikely. The next central catalyst for a genuine altcoin season will be the Ethereum Spot ETFs, which may or may not be approved in May. Why? Much of the Bitcoin wealth has been siloed, whereas a rising ETH price naturally disperses on-chain far faster. 

The emergence of extreme pockets of overperformance has been a calling card of the 2024 cycle to date, and the result is that investors have to get better at allocating capital. No longer is the rising tide lifts all boats market dynamic in play, and instead, certain altcoins are becoming liquidity blackholes while the rest float statically. Outside of memecoins, only a handful of altcoins have performed well in the last month: Aerodrome Finance (AERO), Goldfinch (GFI), Toncoin (TON), Pendle (PENDLE), Jupiter (JUP), Shadow Token (SHDW), Raydium (RAY), and Joe (JOE). Note the heavy dominance of Solana tokens in this list. 

But why the heavy skew towards Bitcoin and memecoins? 

The thesis currently being pushed is that the market is not in the PVE (Player Versus Environment) phase traditional of bull markets but rather a more advanced phase of PVP (Player Versus Player) with crypto natives using their newfound BTC wealth to trade against each other on memecoins. 

What follows is the author’s entirely personal opinion.

I believe there is a certain amount of cognitive bias wrapped up in this theory, as there is, in my own opinion. Greed has always been a primary driver of the impulse towards altcoins. Investors see that majors have already pumped and quickly scurry further out on the risk curve, hoping to frontrun others doing the same. Memecoins perfectly encapsulate this impulse. Crypto is the modern era’s greatest implementation of a frictionless market, it attracts global capital flows, and humans have a deeply ingrained desire to speculate. Together, the memecoin meta makes perfect sense. As markets have matured, the cypherpunk element of creating something meaningful has faded to be replaced with a gambling appetite looking to make generational wealth. Humans always take the path of least resistance, and the ability to turn four figures into six clicking several buttons is an intoxication so profound that the lizard brain stands no chance of refuting it.   

Memecoin Supercycle? 

This cycle has been dubbed the ‘Memecoin Supercycle.’ Instead of altcoins blindly rallying, memecoins, the most speculative arm of the space, have been in the driver’s seat. I personally disagree with the thesis that the memecoin mania is late-stage PVP behavior. Rather a new evolving dynamic and social commentary on the growing bifurcation between owners and debtors, a more honest reflection of markets, and the rise of greed tinged with a background flavoring of despair. Markets reflect their constituents. Crypto’s volatility attracts players and it is the most exciting multiplayer money game that exists – naturally the long-tail risk element thrives. 

What Is the Memecoin Supercycle Thesis?

Attention is the most valuable currency in the modern era, and memecoins capitalize on this. They are intrinsically retail-friendly tokens, and when there is distributed ownership (no large wallets holding a concentrated percentage of supply), they are by a country mile the most egalitarian tokens on the market. More on how VCs have fueled the memecoin rise later.

Capital follows attention, and where attention flows, liquidity will inevitably follow. The only truly scarce resource in the crypto economy is attention –  a thesis outlined by Cobie in his late 2021 piece ‘Tokens in the attention economy.’ Tokens live and die on their ability to draw eyeballs, and this dictates the underlying demand and, therefore, value of the project. The winners capture attention and remain popular. That is all it…