Monday, 6 May 2024

Here’s Why Some Cryptocurrency Investors Think There’s a Meme Coin Supercycle Right Now

by BD Banks

One of the most popular narratives among cryptocurrency investors over the last six months is that the crypto sector is currently at the very start of a “meme coin supercycle” that will send meme coin valuations into the stratosphere. Such claims have been made for past cryptocurrency bull runs, too — and whether or not they were proven true, investors who were properly positioned made out like bandits.

So let’s take a beat to dive into the meme coin supercycle hypothesis to see how plausible it is, and how you can make money from the ongoing surge of interest in the segment, whether or not the loftier predictions become reality.

The case in favor of the supercycle

The halving of Bitcoin‘s (CRYPTO: BTC) mining reward, which occurred in late April, is proposed as the starting gun for the supercycle. The theory goes that once Bitcoin’s price adjusts upward to account for the permanent reduction in further supply of new coins via mining, it’ll carry the rest of the cryptocurrency ecosystem along for the ride, either immediately or after its own bull run peters out. The idea is that investors will be willing to liquidate some of their supposedly enormous gains to chase growth elsewhere once Bitcoin’s momentum dies down.

At the same time, driving the bull run will be tremendous amounts of new capital that are expected to flow inward as a result of the approval of exchange-traded funds (ETFs) like the Grayscale Bitcoin Trust by the Securities and Exchange Commission (SEC). Before, investors would at least need some kind of cryptocurrency trading account to invest; with the ETFs, people can buy a security whose value is tightly linked to Bitcoin from their retirement accounts, thereby opening the door for even more demand to fight over the freshly limited supply of coins. If other ETFs are approved, such as for Ethereum, it could have an ancillary additional effect as well.

Solana (CRYPTO: SOL), a popular blockchain for trading meme coins like Dogwifhat right now, will allegedly be the primary beneficiary of the capital inflows to Bitcoin. The argument here is that for new investors, it’s the easiest chain to navigate, as it operates quickly, requires minimal fees, and has a large selection of serious crypto projects in decentralized finance (DeFi) as well as countless meme coins with no intended utility.

Furthermore, there is reason to believe that investors at large are interested in getting exposure to meme coins. Venture capital groups and hedge funds are now starting to seriously dabble with meme coin investments, as they want to capture some of the absurd returns that are sometimes possible to attain in the space. Plus, since 2021 many small investors are familiar with the idea of a meme coin, having invested in Dogecoin or Shiba Inu and seen their impressive runs.

Then there’s the situation with inflation and the Federal Reserve’s quest to tamp it down. Crypto investors advocating for the supercycle suggest that the Fed is likely to cut the prime interest rate at least once in 2024. As the cost of borrowing money declines, there is thus more capital to splash further along the risk curve than before, and toward the most speculative investments like memes.

Finally, proponents of the supercycle point to a growing sense of economic discontent among younger crypto investors. Those investors have faced substantial financial barriers to achieving their life and money goals, especially for key attainments like home ownership, and thus they are becoming increasingly nihilistic about their probability of future success. Hence their alleged desire to invest in the riskiest corners of cryptocurrency, where they believe that there are life-changing returns lurking, will drive the meme coin bull market all the more intensely even after the Bitcoin catalysts have played out.

Don’t put the horse before the cart

So far it is ambiguous whether the meme coin supercycle hypothesis will be proven true or false. With that being said, most of the arguments for it pass the sniff test.

The halving process will indeed eventually result in a scarcer supply of Bitcoin, and the ETF will make it easier for capital to enter the crypto ecosystem. Solana is indeed the lowest-friction chain to use in my experience, and there is already a rich set of software and hardware tools that investors might need to do research and transact. The meme coins of the minute are on that chain, and they’re gaining public awareness by the day.

But forecasting the odds of a rate cut is sketchy at best. The market’s expectations regarding the Federal Reserve’s decisions on the matter have been refuted again and again over the last year or so.

Likewise, it is probable that there are at least a few disenchanted young crypto investors. Still, predicting that their desperation will drive them to invest in meme coins in great numbers within a specific period of time is a bit of a stretch, even if the gist of it makes sense.

Don’t take this to mean that you should or should not invest in meme coins or other cryptocurrencies right now. If your portfolio is diversified and you have some extra capital to allocate to a riskier investment, it is worth considering buying a coin like Solana or Bitcoin to start. And if you can tolerate volatility, picking a meme coin or two to make a small investment might be appropriate — just don’t get caught up in the hype about the supercycle and overcommit if it starts to pick up.

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Alex Carchidi has positions in Bitcoin, Ethereum, Shiba Inu, Solana, and WIF. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.