A widely accepted heuristic in our asset class is that funds trickle down the risk curve as we progress through the cycle. It goes like this:

• Stablecoin

• Majors

• Mid caps, like L1s

• Small caps, like onchain tokens or newly funded games

However, this cannot be less true in our current market cycle. In fact, we skipped all the way from Majors directly to onchain tokens, leading to a thriving memecoin market and a dwindling CEX alt cycle. The purpose of this piece is to look back on how the Alt Season concept came to be, why we haven’t seen it this time, and why Memecoin Supercycle is taking center stage this time around.

The 2020 cycle is the equivalent of choosing Story Mode in a game. As long as you avoid obvious honeypots and have some level of basic selection skill, you were making money. This environment is due to the combination of 2 factors

• A low baseline market cap for all tokens

  • SOL TGE: $5.5m

  • AVAX TGE: $90m

  • FTM TGE: $30m

• 7 trillion dollars were injected into the system in the span of 2 years, making 2020~2021 the largest FED liquidity injection period in history

With an abundance of buyer and low starting valuation, the music chair went on longer and harder than anyone expected. From March 2020 to November 2021, the total altcoin market grew by 30x to a whopping $1 trillion dollars.

It seemed like there was always another greater fool, until there wasn’t.

After a brutal year of bear market and some of the most respected firms blowing up, the market seemed poised for the start of a new cycle. Starting from 2023, the market went up as people wished for, except it was mostly in BTC and a few select altcoins.

Looking at OTHERS/BTC, which compares the movement of altcoins outside of the top 10 versus BTC, you can see that we’ve come back to level last seen at the top of the 2023 Echo Bubble and the start of 2021 where altcoins went parabolic. In other words, it’s not looking good for altcoins.

The question to ask here is “Why?”

Let’s take a look at what the larger environment looked like at the end of the last cycle

• Tightest financial condition since the 2008 Financial Crisis

  • Fastest rate hike in recent decades, rivaling that of the 1980s, which sucked liquidity out of risky assets into US Treasuries

  • The tapering of FED QE activities, decreasing liquidity injection into the system

As liquidity decreased and safer alternatives to park assets, such as US Treasuries, presented itself, crypto ran out of greater fools to push the price higher.

However, while the public market experienced a total reset in valuation, the private market didn’t. Even during the bear market, VCs were still funding companies at valuations that make Web2 investors’ jaws drop

• Yuga Labs: $450m at $4b

• Secret Network: $400m at $8b

• SUI: $300m at $2b

• Wormwhole: $225m at 2.5b

• Zksync: $200m at 1.25b

Despite being in its early growth stage with few active users, the past performance of successful altcoins enabled companies to raised at extremely high valuations in the private market. As founders have to ensure private investors’ returns, the TGE marketcap remained elevated compared to sentiment in the public market. The elevated valuation combined with the lack of product market fit for most newly launched tokens meant it was extremely difficult to find new buyers after the token goes public.

Here are a few examples:

Just as VC funded altcoins became unattractive, the on-chain trading space started numerous significant improvement in its UX. Specifically, the advent of telegram based trading bots, like Unibot and Alfred, simplified the process of using a DEX. The significant UX improvement combined with a substantially lower starting marketcap than tokens available on CEX (most start at lower than 50k), the on-chain trading space proved itself to be a much more lucrative environment.

Later in 2023, the current bull market cycle kicked off and Solana repriced by 9x over 5 months, providing the necessary wealth effect required for its on-chain economy to flourish, a dynamic also seen in NFTs on ETH during the last cycle.

As CEX launches continued to perform underwhelmingly, and more memecoins provided parabolic upside unavailable in CEX, more flows went onchain. With the introduction of PumpFun, which lowered the capital barrier of entry for launching memecoins, and a euphoric pump that pushed Solana to $200, the onchain market reached its crescendo. The onchain market saw its highest volume day and most tokens launched day in May (aside from the August Trump assassination event), coinciding with the price action of Solana.

Throughout the past few months, memecoins have proven themselves to not be a new investment vehicle inside crypto, but also a barometer for real life event, as shown in Boden, MAGA and more. While the growth potential in memecoins ebb and flow with the general market, and sometimes it can seem bleak, it is important to remember that market always swing from one pendulum to the other. What will remain is memecoin’s ability to convey our collective view on cultural artifacts, be it internet memes or real life events.

Keep calm, and keep memecoin-ing.