Source: TradingView, CNBC, Bloomberg, Messari
Memecoins
On the surface, it was another quiet week in digital assets, as “Uptober” optimism has been put on hold through the first two weeks of the month. “Uptober” is a term coined by the crypto community to describe the historical trend where Bitcoin and other digital assets often perform well during the month of October, reinforcing the belief in another seasonal boost. But outside of a few outliers to the upside (UNI, SUI, TAO, and AERO), there hasn’t been much to support this year’s festivities.
That is, of course, unless you include the hottest sector in crypto – memecoins.
Before we go further, let me remind you of my views on digital asset valuations. Value comes in 3 forms:
- Financial: Free cash flow, dividends, earnings multiples
- Utility: usage, gas fees, collateral, rewards
- Social: i.e. a "cool factor"
If a token doesn't have at least 2 of the 3, it becomes difficult to value and thus hard to justify owning (at least via a value lens). Many of the most recent token launches in 2024 do not have any of these attributes, let alone 2 of 3, which is why they have gone straight down.
Ethereum, you could argue, has all 3 (or had all 3). Ethereum is an app store that generates revenue when apps are created and used (financial), which creates deflationary pressures on the token supply. ETH is also used as gas and collateral (utility), and up until recently, there was a strong community that was enjoyable to be a part of (social).
Bitcoin has only 1 of the 3 (social value), but it’s arguably the strongest social currency ever created.
This brings us to memecoins. Memecoins are a type of digital asset often inspired by internet memes or pop culture trends. They usually lack intrinsic value or technological innovation, and their value is primarily driven by social media hype, celebrity endorsements, and community enthusiasm rather than fundamentals. But unlike Bitcoin, which has created such a polarizing, religious debate over the past 15 years of its importance, memecoins don’t try to be anything other than fun. And for many, they are. We live in a gambling culture, with everything from 0DTE (daily) options, prediction markets, sports betting, and fantasy sports giving gamblers a 24/7 outlet for trying to multiply their wealth. Some argue that the decimation of the middle class and the insane wealth disparity has disincentivized trying to earn a living and replaced it with a desperation hail mary to try to win it.
Source: https://fred.stlouisfed.org/
Now, in some ways, memecoins are pretty irrelevant. Collectively, memecoins represent only
$55 billion in market value, which is roughly 2.3% of the total liquid digital assets market, and are dominated by DogeCoin (DOGE) and Shiba Inu (SHIB), both of which are an open and inclusive joke. Further, meme assets are not unique to crypto, as equity investors have also been
forced to try to understand meme stocks like GME, BBY, AMC and DJT, which collectively have a similar market cap to memecoins. Perhaps the biggest difference is that the equity market has been around for centuries, and most investors now utilize some sort of Graham and Dodd / Buffett-like valuation framework, which allows them to easily dismiss meme stocks because it doesn’t fit their narrative of value. They can compartmentalize something like GME by calling it silly, while still defending the sanctity of the rest of the stock market as being pristine and important.
Yet these same investors can hear about memecoins like DOGE, SHIB or some recent newcomers like PEPE, WIF or POPCAT, and dismiss the entire digital assets market as a joke because of them. The bias is real. In equities, meme stocks are a cute, irrelevant afterthought. Meanwhile, in digital assets, the very existence of memecoins often invalidates an entire asset class. Even within crypto, many dismiss them and even blame the SEC for their rise.
Others think memecoins are distracting and ruining the “real” areas of the crypto market. Regardless, the rise of memecoins is real, and last week was no exception as they outperformed the entire digital assets market. Look no further than the rise of Solana and Base, which most memecoins are built on, to see how impactful these coins are in adopting and using blockchain. Pump.fun is a decentralized platform on the Solana blockchain that allows users to create and trade memecoins easily. It launched in 2024 and quickly became a go-to destination for creating meme-based tokens with minimal effort. Users can mint their own coins without presales or team allocations, making it accessible to anyone. It’s also the fastest-growing application by revenue in the history of digital assets.
Source: Syncracy
Is this sustainable? I have no idea. For someone like myself who has spent seven years in digital assets trying to define, and prove, the value of certain digital assets in rising sectors like DeFi, gaming and AI, and has defended the sanctity of the asset class to institutional investors, a part of me does understand why there is so much hatred towards memecoins. They are silly. They are weird. And they are making a lot of people rich who haven’t put nearly as much time or energy into this industry. It’s not too different from the 2021 NFT craze, which
we also defended at the time. They may not be for everyone, and they may not be that important, and questionable characters on crypto Twitter may endlessly shill them… but they are real.
Election Year Volatility Looms in Crypto Markets
As we approach the 2024 U.S. presidential election, Bitcoin’s past behavior offers insight into what may lie ahead. Historically, BTC has been relatively calm pre-election, only to experience heightened volatility post-election. This time, the options market is already hinting at turbulence, with a pronounced kink in the volatility curve that peaks post-November, indicating that the market is bracing for action. Political outcomes often shape broader macroeconomic policies, which could trigger liquidity shifts and regulatory changes that impact crypto markets directly.
Source: Velo.xyz
In the past, crypto prices have reacted to policy signals from new administrations—typically driven by expectations around inflation, financial regulation, and digital asset policies. As in previous cycles, uncertainty around potential government changes is creating anticipation. Historically, digital assets perform well after elections, especially when economic policies favor looser monetary conditions.
We’re likely heading towards something similar. Markets hate uncertainty more than bad outcomes, so even though roughly 50% of people will be disappointed with the outcome on election night, just about all investors will be happy that the uncertainty goes away (assuming a peaceful transfer of power).
That said, the candidates are quite different in their public support regarding digital assets. We found this chart from Galaxy Digital very helpful as it pertains to the key comparisons of crypto policy of a Trump/Vance administration versus that of a Harris/Walz administration:
Overall, Trump seems to be the most favorable candidate for the majority of the issues and legislations but Harris' administration is expected to be much more accommodative/constructive relative to the current Biden administration as well. More specifically:
- IRS/Tax issues - Distinct differences between the two candidates: Trump has raised a desire to reduce the IRS workforce, while Harris' major emphasis is on 'rolling back Trump tax cuts for the wealthiest Americans' and would likely increase capital gains tax. Taxing crypto has been seen as an easy target for Democrats to raise revenue as well.
- Bitcoin Mining - Trump made headlines on multiple media channels for supporting 'made in America' Bitcoin and characterizing Bitcoin mining as domestic manufacturing. Trump has also raised money from Bitcoin miners. While not specific to Bitcoin mining, Harris has made "climate justice" as a key pillar of her platform and has co-sponsored the "Green New Deal" while in the Senate... unlikely to be supportive.
- SEC - Trump is extremely supportive and has promised to 'fire Gary Gensler'. Harris also seems broadly constructive and has said her administration would "encourage innovative technologies like AI and digital assets while protecting our consumers and investors. However, tokens and firms (mentioned below in Trump custom basket) sued by the SEC will likely see outsized benefits from Trump's victory.
- FIT21 - Both Trump and Harris' teams will likely support positive market structure reforms. However, JD Vance stands out the most as his office has expressed significant issues in advancing market structure legislation.
- Treasury: BSA/Sanctions - While less stringent than the current administration, Trump and Harris are expected to maintain tight control on KYC/AML rules and sanction enforcements.
- Banking Regulators - Trump has pledged to 'end Operation Chokepoint 2.0' while Harris might also ease Operation Chokepoint 2.0 based on behind-the-scenes conversations. Trump's OCC allowed national banks to touch blockchain as well.
- Stablecoin Legislation - Republicans, in general, have supported the formalization of stablecoins. Democrats have been opening up to the idea and have rallied behind Maxine Waters' approach to stablecoin policy, which is a net positive.
Decentralized Finance - Trump said that he'll unveil plans to ensure that the US will be the 'crypto capital of the planet' during a speech at the Nashville Bitcoin Conference. Trump's family has recently launched a DeFi project, "World Liberty Financial," as well. Trump has shown much more concrete support for the industry vs Harris. However, some analysts say there is a risk that his family's new project could complicate the passage of pro-crypto legislation due to a conflict of interest.
