Mint Ventures: Bottom fishing in a bear market, avoid choosing Memes

Original source: Mint Ventures

Original author: Alex Xu

This issue of Clips comes from a discussion I had with other investors in a crypto community about the topic of Memes. I have elaborated on my views in this article to fully express my perspective.

The following content reflects my views as of the time of publication, and may contain factual inaccuracies, biases, and errors. It is for discussion purposes only, and I welcome corrections from other investment research professionals.

Do not choose Meme projects for bottom fishing in a bear market.

This sounds like a cliché, doesn’t it? Who would choose a "shitcoin" with a lifespan of a few months or even just a day for long-term allocation?

However, the Memes discussed in this article refer to "blue-chip Memes" like Doge, Shiba, and Pepe, which have large market capitalizations and are listed on major exchanges.

Some opinions suggest that "new generation small-cap Memes" like Pepe, which already have considerable influence, will replicate Doge's trajectory in the next bull market and achieve a market cap of tens of billions.

But in my view, when making cross-cycle allocations, it may not be a good choice to bottom fish in these during a bear market.

The Value Source of Meme Tokens

Meme is a phenomenon of cultural and informational self-replication, copying, and dissemination, while Meme tokens are the tokens of crypto projects with meme attributes. One of their characteristics is that the tokens themselves generally do not have direct value capture, and the projects often derive from meme IPs outside the crypto world, such as the Shiba Inu of Doge, the Pepe frog of Pepe, or the recently popular token named Bitcoin featuring Harry Potter, Obama, and Sonic (with four layers of Buff).

In addition to well-known figures and popular culture, some widely accepted views can also become sources of Memes. For example, LTC's positioning as "digital gold" relative to BTC was once considered "digital silver," inheriting the dual cultural power from precious metal silver and BTC as a financial Meme.

Unlike other commercial crypto projects like DeFi or web3 games, Memes seem to lack a business model, but their business model and PMF (Product Market Fit) are very clear: providing a speculative medium with immense imaginative potential for the general crypto investors.

The phrase "providing for the general investors" refers to the simplicity and novelty of the Meme concept, which can be bizarre or contradictory, making it easier to capture the attention of the masses amidst a sea of information.

The term "immense imaginative potential" means that they do not have actual business as the gravitational pull of their token price; their valuation can soar solely based on "consensus."

Even the most serious crypto practitioners cannot deny that "speculating for profit" is an important, if not the primary, driving force in the crypto world, and the endless stream of Meme projects is a response to this demand for PMF.

The superiority of crypto Meme tokens compared to other traditional speculative targets is also very evident:

· Unprecedented "Accessibility". As long as you have a crypto wallet and internet access, anyone anywhere in the world can participate in its speculation without KYC, registration, or scrutiny, with no identity barriers, and trading is available 24/7. In the traditional financial world, participating in the speculative frenzy of Gamestop in 2020-2021 was fraught with difficulties.

· Information Transparency. Although there may still be manipulation and influence from Meme issuers in terms of code, funds, and rules, the transparency of token information, fund flows, and algorithms in crypto Memes has greatly increased, making the "information starting point" for speculation fairer compared to traditional opaque Ponzi schemes.

· A wide variety of options, never lacking targets. The hard cost of initiating and creating a Meme project is very low, leading to a plethora of projects, and "there are always many opportunities."

Unlike conventional web3 commercial projects (like DeFi), the intrinsic value growth of Meme tokens comes purely from the marginal inflow of attention and funds from future speculators (without derogatory intent). For the former, we mainly predict the increase or decrease of their business; for the latter, we need to speculate on the future attention and funding votes from speculators in the market.

This also means that the operators of Meme projects will primarily focus on attracting and teasing the attention of the masses, guiding that attention towards the right narrative, and actively promoting the spread of FOMO sentiment.

The problem is that this is not only difficult but may also not align with the long-term interests of the new generation of Meme project operators.

Meme Tokens Lack a Moat

The development of Meme projects has distinct phases:

1. Conceptualization and Narrative Design: Challenging the mainstream, igniting combat emotions, being absurd and bizarre while not straying too far from the masses.

2. Early Promotion: Attracting the attention of early speculators; whether one can gain endorsements from influential figures at this stage is a turning point for success or failure.

3. Shaping and Expanding FOMO: The wealth stories of early participants are widely disseminated, greed attracts more people to join, and individuals believe that they are not the last ones to take the baton.

4. Larger Scale Adoption: Listing on major trading platforms, shedding the "shitcoin" label, and becoming a true target for mass speculation.

5. Maintaining Attractiveness: Defending existing attention and market share of speculative funds.

The vitality of early-stage shitcoin Memes is fragile, and under the premise of cross-cycle allocation, this article mainly discusses "Meme blue chips" that have entered phases 4 and 5.

As mentioned earlier, the operation of Meme projects is essentially about capturing public attention; however, the shift of public attention is inevitable. The migration of attention is far easier than changes in users' funds, product usage habits, and preferences for specific brands.

More importantly, the cost of attempting to create a Meme is so low that existing Memes face endless competition for the attention and resources of speculators from subsequent projects.

However, in the face of competition for attention from later Meme projects, existing Memes have very limited means to maintain their existing attention share. Taking Shiba as an example, it gained market attention during the bull market through a "novel and topical operation" of airdropping 50% of its tokens to Vitalik, riding the wave of Doge's surge to secure its position as the "prince of the dog world."

However, after listing on major centralized exchanges, its ability to gather attention and topicality has inevitably diminished. Despite frequent actions from the Shiba project team, including building a DEX, launching an L2, issuing NFTs, and engaging in the metaverse and gaming, the results in terms of business performance and token price have been disappointing, with its DEX Shibaswap having only $21 million in TVL, and its token price significantly underperforming the market over the past year.

Comparison of the price trends of shib and BTC over the past year, source: coinmarketcap

Transitioning from a Meme project to a business project is not easy. On one hand, business projects require more refined strategies, products, and technical steps to be planned and executed, challenging project operational capabilities on different dimensions. More importantly, the clumsiness of "working hard" appears unappealing, contradicting the anti-mainstream, edgy, subcultural, and high-profile nature of Meme projects at their inception, further dissipating the already waning charm of Memes.

Unlike business projects that can build certain competitive barriers based on their business models, Meme projects often lack means to maintain their intrinsic value. The dissipation of attention from speculators is inevitable, and efforts to "work hard" often produce counterproductive effects.

The Teams Behind Memes Also Lack Long-Term Motivation to Maintain Them

In this year of exceptionally scarce speculative attention, the success of the new generation of Memes is rarely a coincidence; most have centralized cluster forces planning and driving them. This force often comes from the collusion of multiple factions, requiring not only funds and trading platform resources but also the timely push from KOLs and strong business resource access (the PEPE project was integrated as a payment method by OpenSea within a month of its inception).

However, after a Meme succeeds, the cost of maintaining its consensus and attention increases. For Meme teams, a smarter approach is to use a "racehorse" strategy to reinvest the profits earned from the previous Pepe into creating more "meme experiments" with different styles and narratives, hoping for the emergence of the next Pepe. Yet, these new "Pepe" projects they create and push to the market also compete for the attention of the "old Pepe."

Since the core teams of Meme projects are mostly anonymous, their decisions regarding a project's continuation or termination carry far less burden than those of founders of other commercial projects. The ability of the controlling team to slip away further worsens the situation for old Meme projects.

Counterexample: Dogecoin and Bitcoin

At this point, you might want to cite a counterexample. "If Doge, which was born in 2013, can rebound in the last bull market, why can't Pepe, as a new generation Meme?"

Doge is precisely a positive example of the diminishing vitality of most Memes over cycles. The outstanding performance of Doge in the last bull market was the result of the immense influence of Elon Musk. "The project backed by the world's richest man, Musk," became a new meme that propelled Doge's rise. If we exclude Musk's support for Dogecoin, whether overt or covert, starting from 2019, it is believed that the Meme elements of Dogecoin have already faded in the ever-evolving crypto narrative.

So the question arises: how many figures in this world possess the immense charisma of Musk, who could inject their influence into Pepe in the next cycle, allowing old Memes to be reborn in a bull market? The number of individuals with the same level of influence as Musk is already very limited, and adding the condition of "standing up to endorse a Meme," the list of individuals meeting this dual standard is empty.

Litecoin, born in 2011, occupies the powerful meme of "Bitcoin is gold, Litecoin is silver," but without new memes and influence injections, its performance in each cycle has also been gradually weakening.

In fact, the best counterexample to the notion that "Meme coins cannot transcend cycles" is not Doge, but Bitcoin. As the progenitor of meme coins, it remains a favorite among both new and old crypto investors and a ballast for asset allocation. However, Bitcoin, as the first Meme in the history of crypto investment, the starting point for all crypto projects, derives its Meme power from its unique and scarce "legitimacy."

This "legitimacy" is something that all other Memes lack, which means they are destined to face competition for attention from successive generations of new Memes.

The difficulty of capturing attention, the inevitable departure of founding teams, and the mass production of competing projects.

Investing in Memes is ultimately a sophisticated craft that emphasizes "short, flat, and fast."