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Hello readers,
Did you know that only 43 tokens out of the top 300 have outperformed BTC year-to-date? Or that 14 of the top 20 best-performing crypto assets this year are memecoins?
In this week’s report, we’re going deep on memecoins and why we expect to see outperformance from the sector as we move toward year-end and into 2025.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment, legal, tax, business, or any other advice.
Let’s go.
First off, I agonized a bit over writing this report. I know some readers will have a knee-jerk reaction to memecoins, and I get it. I used to feel the same way.
Last cycle I couldn’t stand memes. I felt that DOGE and SHIB were making a mockery of the industry — which in turn made it hard for the almighty “purists” like myself. After all, I’ve been laser-focused on onchain data and fundamental analysis since I got into crypto. I’ve always felt that the industry was largely misunderstood. My goal has always been to cut through the noise (it’s why I started The DeFi Report). But how do you cut through the noise? For me, it’s always been with data. By breaking things down with simple, easy-to-follow frameworks. By focusing on business models and cash flows. By being ruthlessly honest. And by meeting investors halfway within interesting analogies.
Memecoins didn’t fit into this. So I didn’t like them.
But I changed my perspective about a year ago when I bought my first memecoin, Bonk (which I still hold).
Why did I change?
Well. When I initially started studying Bonk, I saw that it had a strong community. A lot of integrations within Solana. The team was building things.
It seemed like I couldn’t ignore Bonk.
It was showing up on my timeline. It was trending on Coinmarketcap. I would see it mentioned on podcasts. I even encountered Bonk reps at Solana conferences. It seemed clear to me that something interesting was going on. And so I bought the token.
My thesis was that maybe it was the “culture coin” of Solana. And if that was true, it had a large upside given that SHIBA reached a market cap of $40b + last cycle on Ethereum. After all, if you have a thesis for an L1, you should be looking for tokens that might have a high beta to the L1 asset.
Anyways. I’ve changed my mind on memecoins. I’m not saying these are buy & hold investments (the way I view BTC). But there is something interesting going on here. I’ve learned over the years that if something is giving you a visceral, knee-jerk reaction, you should look into that thing.
And so my hope with this report is for more readers to do just that. Be curious. Roll up your sleeves. Go to first principles. Seek to understand, rather than judge and dismiss.
More recently, I started to crystallize my thinking regarding fundamental analysis of crypto assets and crypto networks. It started when someone asked me what I saw with Solana back in late December of ‘22. I couldn’t point to fundamentals, because there weren’t any at the time. But I also knew that I did a ton of research before investing.
“I just thought the community had similar vibes to Ethereum back in December of 2018 (when ETH traded down to $80). I ran the numbers and the KPIs looked similar. I could see that the community was strong. I studied the core contributors, founding team, investors, etc. Some people had already gotten rich. But it seemed like they wanted to stick around. Fight it out and “chew glass.” So my instinct told me it was going to come back.”
That was my answer.
But what I really did was identify a “cult.” I just hadn’t crystallized my thinking on that just yet. I realized that’s exactly what I was doing after watching Murad’s speech at Token 2049.
Everything came into view for me when he started talking about memes as “cults.”
Why?
Because almost all of my successful investments in crypto can be seen as cults.
Bitcoin is a cult. Ethereum is a cult. Solana is a cult. Chainlink is a cult.
The strongest crypto networks (and assets) are all cults.
Your job as an investor is to identify them. Just make sure you don’t join the cult.
I think you could also argue that Apple is a cult. Tesla is a cult. Barstool Sports is a cult.
The best brands have “cult-like” followings. The same applies to crypto networks, which like to call themselves “communities” rather than cults. It reminded me that one of the reasons I made a convicted bet on Bitcoin back in early 2020 was because I saw an interview with Paul Tudor Jones. He was talking about how Stanley Druckenmiller told him that “80% of Bitcoin holders held from $20k all the way down to $3k.”
That’s cult-like behavior. And that’s exactly what you’re looking for in crypto networks/investible assets. That’s a large piece of the fundamental analysis. If you’re a value investor, I realize this sounds a little out there. But it’s the cold hard truth as far as I’m concerned.
In my view, there are 5 key factors:
Retail investors are sick of playing a rigged casino game with VCs — who have become accustomed to dropping tokens on retail at $8-$10b valuations at the Series B level. For what it’s worth, I don’t think this is purely the VCs fault. Lack of regulation and poor legal precedent/guidance plays into it. But you can’t create a cult-like community of users and evangelists with airdrops at $10b valuations. It just doesn’t work. So retail created its own casino. With its own rules.
The altcoin market cap is roughly $900b today, with $155b of token unlocks in the next 5 years. Meanwhile, memes are about $45b, with new memes representing about $10b of market cap. Memecoins don’t have unlocks, retail can get in at the seed stage, and investors have already watched DOGE get to $95b and SHIB to $40b + last cycle. *Note that I am working on data science to identify “cabal coins,” so that we can separate fair launches from scams or coins more susceptible to insider rug pulls.
People are spending more time online. They are lonely. Worried about their financial futures. And are seeking community. Memecoins check all the boxes. *If you’re a boomer, study the younger generations, which increasingly impact all markets.
Online gambling has seen significant growth over the last 3 years. It’s now an $85b dollar industry, growing 11.7%/year. Sports betting represents roughly 50% of the industry, with mobile gambling growing faster than desktop. Memecoins are piggybacking on this trend, with greater odds of hitting it big.
The market is waking up to the fact that altcoins and memecoins are selling the same thing — a seat at the casino table. In some ways, it’s never really been about the tech. It’s always been about speculation (nothing wrong with that, the same is true of Wall Street). And memecoins appear to be a better vehicle for retail users.
It feels odd saying it, but some of the same things I focused on with BTC and ETH when I made my initial investments in crypto are the same things I’m focusing on with memecoins. For example:
Broad “addressable interest” (something that people can get behind globally)
Strong community (via crypto Twitter)
Big drawdowns, but the community stays (avoid 99% of new stuff, focus on coins $100m+ that have been battle-tested)
Extremely high price targets from within the community
No unlocks
No VCs (option to buy on the market like everyone else)
A good narrative + community slogans that resonate
Strong belief
Sense of belonging
A network of independent people willing to work for the project (evangelists)
Tokenholder growth rates (30, 60, 90 days)
Avg. tokenholder hold time (measured as last time the coin was moved)
% of tokenholders that have not moved coins over 30+ days, 60+ days, 90+ days, etc.
% of supply held by top 10, 50, 100 addresses
Median holder amounts (in $)
# of wallets holding $5k+, $10k+, 100k+, $250k+, $1m+
% of trades in the first week from wallets that previously had less than 5 DEX trades (to identify projects with lots of insiders).
Liquidity on DEXs + impact on price
Listings on CEXs
The key here is to do a relative comparison across tokens to identify what “good” looks like. As noted, I’m working on data science to get ahead on this today (I’ve done my own research, but it’s not yet in a format I can share with you). If you’re a young, hungry analyst/data scientist/engineer who can pull these insights, feel free to reach out to discuss collaboration. The data companies in the space will be slow to offer deep memecoin insights.
A quick note before we get into the picks.
If you’ve been reading our research you know that I’ve been calling for the market to climb a “wall of worry” all year. I believe we are nearing the peak of this, which could come after the election and ride us into ‘25. The signal to adjust my portfolio was when the Fed cut in September. Below are a few coins I bought.
Please keep in mind that they are all up multiples from my entry. I do think they will go much higher, but please do your own research. Also, please keep in mind that I reserve the right to change my mind, and may sell without writing about it.
I am not your investment advisor, I’m just here to share my research.
With that said, let’s hop into the analysis.
I believe this coin has a chance to move into the top 25 assets in crypto in terms of market cap.
Why I like it:
SPX6900 has massive “addressable interest.” There is a reason dog coins do well. Everyone likes dogs. It’s a global market. They are funny. Making memes with them is entertaining.
I believe SPX6900 has an even larger global appeal. Its motto is “Flip the stock market.” And “Stop trading and believe in something.”
It reminds me a little bit of Gamestop. But with a much higher upside. Feels very much like a movement. Since I became interested in early September, the tokenholder base has grown 20x. The Twitter account of the project has grown 25k followers in the last month. Every tweet is getting engaged with “cult-like” commentary.
SPX has a “cult leader” in Murad, who owns 2% of the supply and has vowed not to sell for a year (you don’t have to believe him, but his wallet has also been exposed by the community, making it difficult for him to do so).
I’m now observing additional whales tweeting out large buy orders and vowing not to sell for a year. Again, not saying we should believe them.
But this is cult-like behavior. Reminds me of BTC.
Ask yourself: What coin will retail buy if they get interested in crypto later this cycle? Are they buying the majors? Or something like SPX6900? Now. Imagine this coin is trending.
Moving on…
Similar to SPX6900, GIGA is iterating off of dogs/cats and has very broad “addressable interest.” “Gigachad” has already been an internet meme for years. It originated on Reddit and 4chan and is popular because it blends irony, humor, exaggerated ideals, lifestyle/fitness, hyperbole, and satire. We know it already has mass appeal.
Similar to SPX, the token has a growing Twitter account, strong onchain signals, a cult-like community, and hilarious memes.
It’s also a token that Murad has been promoting (and is a large holder of).
Nobody is onboarding Normies to Crypto like $GIGA
— Murad 💹🧲 (@MustStopMurad)
3:49 PM • Oct 11, 2024
Should we be concerned about Murad’s presence as an “insider?”
Maybe. But it’s not a big concern of mine at the moment. Here’s why:
The best crypto projects (applies to memecoins) have an army of evangelists and storytellers. Murad is very talented in this regard. And he has spawned an army of followers. His Twitter has jumped from 100k to 377k in 6 weeks. That’s insane. And it’s a clear signal to me.
I believe Murad is doing it the right way. In addition to shamelessly promoting his investments, he is sharing a very clear, understandable thesis. He is also sharing lots of good data to back his thinking.
I’ll say it again. You need to look for cult-like communities. Murad is critical in these efforts. There are other influencers in crypto with large accounts but they are scammy, less transparent, and do not share data or thesis work. I believe retail is smart and could flock to Murad. In turn, many could become evangelists themselves.
This one is pretty simple. It’s capturing the rotation from dogs to cats. I realize this sounds silly. But it’s objectively what I’m seeing in the data. For me, exposure to POPCAT is a bit of a hedge on my investment in BONK.
POPCAT has a very strong community. Good onchain fundamentals. And a lot of momentum. It looks like it’s going to be the winning “cat coin.” Yes, I really did just write that 😀.
Look, there’s quite a few memecoin options out there. I don’t know if these are the winners. I just think memecoins will do well. I want to have some exposure. And I was able to build some conviction on these ones.
Never forget that you are on the furthest end of the risk curve when you mess with memecoins. Again. Please do your own research.
Below are the primary risks in my view (no particular order):
Regulation. Good regulation for the industry (assuming a Trump victory on Tuesday) could mean that altcoins can innovate on token economic design, returning value to holders. This could impact the market perception of value, pushing investors toward assets with cash flows. I think this will take time to play out, and so it’s not a big risk in my view.
Liquidity. Market values mean nothing for memecoins if there isn’t ample liquidity.
Large holders dumping. Make sure you understand onchain data to avoid rug pulls. Again, my intent is to build this out and share insights with you, but this will take a little time.
Shift in market sentiment/macro. Memecoins run on liquidity. If we see a shift in inflation, a geopolitical scare, etc. this would impact crypto (and memecoins) first.
Attention shifts. Timing just flat-out matters with memecoins. This is all about the attention economy. Understand that something popular today could lose mind share quickly to new narratives, especially projects that have run up considerably (insiders will take profit and move to new opportunities).
Consensus view. Memes are becoming a consensus bet amongst crypto natives. Keep this in mind. If everyone is overweight memes, who’s buying? New users must come into crypto for the thesis to fully play out.
Things that perform well early in crypto cycles tend to perform really well later in the cycle. I believe this could be memecoins this cycle.
Things that cannot be valued can go much higher than you think. Why? Once you can run a DCF, the asset has a ceiling.
The market has already seen DOGE hit $95b. That’s the relative opportunity for new memes with mass appeal.
Financial nihilism is real. Memecoins are a way to express a bet on this.
If you have a visceral reaction to memecoins, look into them rather than let your emotions trigger you.
I have strategically selected mememcoins trading on Solana. That’s where the memecoin casino is strongest in my opinion. *Note that SPX6900 is on Solana, Base, and Ethereum (covering all the bases).
Do memes have utility? One can argue that memecoins provide a “C to C” service. Customer to Customer. They represent entertainment. Community. Loneliness reduction (sadly true). In some ways, it doesn’t matter that they don’t have revenue. Revenue is expressed by the capital appreciation of the token.
Memes are a trade, not a multiple-cycle investment.
I believe we could see 25+ (possibly as many as 50) memecoins move into the top 100 crypto assets — assuming we see BTC break all-time highs and another “frenzy” like altcoin season. There are 10 today.
Anecdotally, I have had several conversations with serious (institutional investors in crypto) about memecoins. I believe we are still quite early and that the trend could continue.
Never put in more than you can lose. If you invest in a memecoin and it’s keeping you up at night, you’ve lost the game. Please avoid this at all costs.
Keep in mind that I could be missing the mark with my thesis. The assets discussed could all go to zero quite quickly.
Please do your own research.
Take a Report.
And Stay Curious.
Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.