Market Musings #1: King BTC & Memecoins
BTC will reach $100K before the end of 2024.
I’ve been dedicating weekly time to managing my crypto portfolio, so I thought I’d document my high-level market thoughts here. I will probably do this every fortnight or monthly, depending on if interesting things are happening in the markets. Let me know if you have any opinions or feedback!
All eyes on Bitcoin
I’m bullish on BTC in the mid-long term. I believe there is a good chance that BTC will reach $100K before the end of 2024.
Let’s be honest here. Given how much things have gone up in the crypto markets over the past six months, BTC ETF inflows are the main thing currently holding up this fragile house of cards.
The good news is that this new capital is entering the crypto ecosystem and is likely to be stickier than the average crypto trader.
The best way to grasp the current state of crypto markets is to track the ETF inflows (Farside is a great source of daily ETF flows). Less than 90 days since the spot ETFs were launched, and there’s already a $14B+ new capital inflow. This is even after taking into account GBTC’s $15B outflow.
So $14B of ETF inflows has caused the price of BTC to rise from ~$45K to $66K.
Imagine what the next $10B of inflows will do to BTC’s price.
Trying to predict short-term flows on a daily basis is a fool’s errand — that’s akin to trying to predict Stable Eras using mythology & divination in an unstable system with three suns — I admit that I have been watching too much Three-Body Problem on Netflix.
But it’s crystal clear that there will be significantly more net BTC ETF inflows in the coming months:
The ETF sales machine is still warming up. Early movers have come in, but there are still a lot of financial advisors and money managers who are still learning and haven’t allocated to it yet. I’ve heard that Blackrock is offering only 20% of its clients the BTC ETF at the moment. Institutions move slowly, but when it gets going, it moves with size. Plus: ETF options coming up
Every money manager needs to have an opinion on the BTC ETF now. They can’t ignore it because their clients will demand it.
Institutions are starting small, buying up small amounts for their portfolio, so they have a reason to keep an eye on it. If it performs well relatively, expect them to size up.
Anecdotally, professional investors are considering allocating 3% of their portfolios to BTC, up from just 1% before, as highlighted by Matt Hougan (Bitwise) in his tweet.
Let’s not forget that US sovereign debt is at a worrying level — tailwinds for a hard asset that is viewed as an alternative to fiat currency.
BTC serves as a benchmark for my crypto trading portfolio. Everything I invest in needs to reasonably outperform BTC over the planned timeframe; otherwise, it would be better just to hold BTC and chill.
For reference, BTC has risen a whopping +58% in Q1 2024.
Current Narratives
The next major leg up in token prices (esp those in the >$1B FDV category) would probably require an injection of new funds and capital raising.
Many large-cap altcoins, including popular L1 and L2 tokens like MATIC, IMX, and ARB, have underperformed compared to BTC — especially so on a risk-adjusted basis.
In my opinion, this underperformance is primarily because the major buyers of these large-cap tokens are liquid VCs and hedge funds. Many launched during the boom period of 2021 - 2022. A large part of this capital has probably been deployed now — since the consensus view is that we’re in a bull market, and firms have been rushing to get their bets in.
This means we need to see more headlines like this:
I expect this new crypto fund trend to accelerate in the coming quarters as liquidity improves in the broader macroeconomic markets. For instance:
1kx raised a $75M fund just this month.
Paradigm is raising a $750-850M fund. Paradigm made a supposed partial “pivot to AI” during the bear market.
Galaxy is raising a $100M early-stage venture fund
Watch for more fundraising news like these — track these on sites like The Block. Some funds can buy and sell liquid assets and might decide to denominate in stETH. This capital will flow directly into the liquid markets. Private investments will take longer to impact the markets directly (e.g., when funded startups launch their tokens) but can indirectly affect market confidence and relative comps.
TL;dr: New 9 to 10-figure crypto funds are a leading indicator for a strong comeback for large-cap alts.
Memecoins
Are we over-intellectualising memecoins..?
Besides BTC, Memecoins is the crypto sector that has significantly outperformed this year. Several theories on why this is happening:
Non-sophisticated retail is here (study financial nihilism). And they only want to buy entertaining things that require zero brainpower.
Counter culture against VC-backed projects with heavy token unlocks. Most memecoins are fairly launched, with the majority of supply distributed to the community
Few projects in crypto actually generate significant revenue or have mechanics that lead to organic buy pressure; this is partly due to regulatory uncertainties, so almost all project tokens are essentially “memecoins”; you might as well buy something fun
The ceiling for memecoins is infinite since they’re not amenable to quantitative valuation frameworks. Most comps use DOGE as the benchmark for where memecoins can go. And it’s really high — DOGE is a $31B coin.
Lack of regulatory risk, since memecoins are often airdropped/fair launched with no central enterprise and unlikely to be classified as securities
Even your favourite serious VCs are taking a stab at rationalizing memecoins:
1kx wrote a brief history of memecoins. I love this quote from the article:
“Although memecoins come in all different types of mediums, they accrue value in the same way: they all require attention, narrative, and hype to survive and spread.”
Li Jin (Variant fund) posits that memecoins can be a viable GTM strategy for product launches, either by launching a new memecoin or tapping on existing memecoin communities
I get it. Memecoins can level the playing field for crypto participants, away from sophisticated funds with greater access and information. With the right tools and network, one can gain an advantage either by getting in early or by identifying trending coins.
But at the end of the day, you must know the game you’re playing. 99% of memecoins will trend to 0 as there is a nearly infinite supply of new memecoins launching while attention is finite; only a few can capture the cultural zeitgeist.
Each cycle introduces new memecoins: In the last cycle, DOGE and SHIB dominated. Their relevance has waned, yet they still command $10B+ FDVs.
This cycle, WIF, PEPE and BONK have pushed through the valley of death, hitting a threshold of attention and community that will likely ensure its longer-term survival, in some form.
Then there is the question of: where will memecoin profits flow to?
Given the retail-centric investor base, I believe it is less likely that profits will flow directly to other more technical sectors like alt L1s, L2s, DeFi, or AI.
More likely, profits will be taken into the base currency of the chain (e.g., SOL, ETH) or thrown into other memecoins — “go big or go home”. That’s one reason why Solana has done well this year, as it holds the notorious title of the best chain to speculate on memecoins.
Investing in memecoins is speculative, almost akin to gambling, with no solid basis for valuation. This makes it difficult to build conviction and invest heavily in them.
Does anyone remember this old Tron crypto casino game “Moon”? Your winnings increase as the multiplier increases, but you must decide when to take profits before it collapses at a random number and you lose your entire bet. Memecoins are a slower, more soap-operatic version of “Moon”.
A few notes:
Memecoins outperform in a bull market. Remember that for the next cycle (this is not crypto’s “last cycle” despite what some people may think).
Political memecoins like TRUMP, BODEN will likely come into play again in Q3 2024 as we head towards the November US presidential elections.
Emerging Narratives For the Future
Outside of memecoins, I’m keeping a close eye on other emerging narratives, which I will expand on in future posts.
“The Next Solana”: Which is the next alt L1 going to go from $1B FDV to $50B FDV?
Crypto x AI: the bleeding edge of tech
Bitcoin apps: L2s, DeFi, Ordinals & Runes
Eigenlayer launch + attention back to ETH
TON ecosystem. $115M incentive program starts in April
That’s enough for this market note, I hope you found this useful!
Cheers, Teng Yan