As a traditional finance professional, I’ve always favored real and tangible assets over speculative bubbles. However, the recent explosion of meme coins has prompted me to reconsider my stance. I took the plunge into this new world and have some interesting insights to share.
Instead of merely dismissing meme coins as fleeting bubbles, I decided to explore and comprehend the forces driving this phenomenon. My journey started with a deep-dive into the code and early on-chain activities of $PEPE, a popular meme coin. [ I was intrigued when I saw a new coin with identical code and launch pattern to $PEPE. I bought some, out of curiosity, only to exit with a 60% loss. It was a hard pill to swallow, especially when I realized I would have made a 300% profit if I had held on to it.
During this journey, I’ve gained several insights. First, bubbles create assets. Last week alone, about 31K $ETH were burned, and 3K $ETH were locked in $PEPE LP, creating a bubble of approximately 300K $ETH. This ‘creation of wealth’ makes many feel as though they’re profiting and brings them joy, despite the underlying asset’s inherent lack of value.
Secondly, investing in meme coins resembles gambling more than traditional investing. This leads to a high number of small investors who are deterred from selling when the coin’s value drops due to high gas fees. This situation effectively traps a significant amount of funds, creating a sort of ‘floor price.’
Seeing a meme coin that I once owned skyrocket, I couldn’t help but feel a pang of regret. “I should’ve stayed in,” I thought. This very feeling may also contribute to the locking up of more funds, as others may choose to hold onto their meme coins to avoid similar regret.
People generally don’t have the energy to constantly monitor a meme coin. After a few days of interest, they tend to either forget about it or sell. Hence, meme coins can lock up a significant amount of idle funds, supporting their own prices.
In conclusion, while the assets may indeed be a bubble, the happiness they bring is real. It’s a world where funds can easily become trapped, and it’s a phenomenon that’s redefining the conventional understanding of value.
Just as the Federal Reserve has been contracting its balance sheet and effectively ‘burning money’ in response to rising CPI, meme coins are mirroring this action in their own unique way within the crypto space.