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That’s why some cryptocurrency investors think there’s a meme coin supercycle right now
One of the most popular narratives among cryptocurrency investors over the past six months is that the cryptocurrency sector is currently at the beginning of a “meme coin supercycle” that will send memetic currency ratings in the stratosphere. Similar claims have also been made in the past during cryptocurrency bull runs, and regardless of whether they were true or not, correctly positioned investors behaved like bandits.
So let’s take a break to dive into the meme coin supercycle hypothesis to see how plausible it is and how you can make money from the continued surge of interest in the segment, whether the highest predictions come true or not.
The case for the supercycle
The halving of Bitcoin‘S (Bitcoin 1.32%) mining reward, which occurred at the end of April, is proposed as the starting point of the supercycle. The theory goes that once the price of Bitcoin adjusts upward to account for the permanent reduction in the further supply of new coins through mining, it will take the rest of the cryptocurrency ecosystem with it, either immediately or after its run on the upside it will have exhausted itself. The idea is that investors will be willing to liquidate some of their supposedly huge gains to chase growth elsewhere once Bitcoin’s momentum runs out.
At the same time, driving the bull run will be huge amounts of new capital expected to flow in following the approval of the exchange traded funds (ETFs) as the Grayscale Bitcoin Confidence by the Securities and Exchange Commission (SEC). Before, investors would at least need some sort of cryptocurrency trading account to invest; with ETFs, people can purchase a stock whose value is closely tied to Bitcoin from their retirement accounts, thus opening the door for even greater demand to combat the newly limited coin supply. If other ETFs are approved, such as Ethereumit may also have an additional ancillary effect.
Solana (SOL 1.56%), a popular one blockchain to trade meme coins like Dogwifhat at this time, it will presumably be the main beneficiary of capital inflows into Bitcoin. The argument here is that for new investors it is the easiest chain to navigate, as it works 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 use.
Furthermore, there is reason to believe that investors in general are interested in gaining exposure to meme coins. Venture capital groups and hedge funds are now starting to seriously dabble in meme coin investing, as they want to capture some of the absurd returns that can sometimes be achieved in this industry. Furthermore, as of 2021 many small investors are familiar with the idea of a meme coin, having invested in it Dogemoneta OR Shiba Inu and I saw their impressive runs.
Then there is the situation with inflation and the Federal Reserve’s attempt to crack down on it. Cryptocurrency investors who support the supercycle suggest that the Fed will likely cut the prime interest rate at least once in 2024. As the cost of borrowing money falls, there is therefore more capital to spend along the risk curve than at first, and towards more speculative investments such as memes.
Finally, supercycle advocates point to a growing sense of economic discontent among young cryptocurrency investors. These investors have faced significant financial barriers to achieving their life and money goals, especially for key outcomes like homeownership, and are therefore becoming increasingly nihilistic about their likelihood of future success. So their supposed desire to invest in the riskier corners of the cryptocurrency, where they believe there are life-changing returns lurking, will drive the meme coin bull market even more intensely even after Bitcoin’s catalysts run out.
Don’t put the horse before the cart
So far it is ambiguous whether the meme money supercycle hypothesis will be proven true or false. That said, most of the arguments in favor pass the smell test.
The halving process it will ultimately result in a lower supply of Bitcoin and the ETF will make it easier for capital to enter crypto ecosystem. Solana is truly the lowest friction chain to use in my experience, and there is already a rich set of software and hardware tools that investors may need to research and transact. The meme coins of the moment are on that chain and are gaining public awareness by the day.
But predicting the odds of a rate cut is imprecise at best. Market expectations regarding the Federal Reserve’s decisions on the matter have been proven wrong several times over the last year.
Likewise, there are likely to be at least some disenchanted young cryptocurrency investors. However, predicting that their desperation will drive them to invest in large amounts in meme coins within a specific time frame is a bit of an exaggeration, even if the gist of it makes sense.
Don’t take this to mean that you should or shouldn’t invest in meme coins or other cryptocurrencies at this time. If your wallet is diversified and you have some extra capital to put towards a riskier investment, it’s worth considering buying a coin like Solana or Bitcoin to get started. And if you can tolerate the 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.
Alex Carchidi has positions in Bitcoin, Ethereum, Shiba Inu, Solana and WIF. The Motley Fool has positions and recommends Bitcoin, Ethereum and Solana. The Motley Fool has a disclosure policy.