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“We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be."

- John Maynard Keynes on memecoins

Thursday Memeable Mailbag

Q: Is bitcoin trading on rate expectations?

It has looked like that recently — it went down last week when people were getting worried about the Fed funds rate staying higher for longer. And then yesterday, it went up when the FOMC meeting was perceived to be dovish.

But I think that’s just Mr. Market messing with us.

Positive real rates are the new normal, and it shouldn’t be price relevant for bitcoin whether they’re a little higher or a little lower for a little longer or a little shorter than expected. 

Bitcoin trades on sentiment and flows and while macro can affect sentiment, it’s ultimately the flows that determine price.

In the previous edition of the Mailbag, I noted that markets have an uncanny way of finding sellers to meet big buyers. I can’t imagine a better illustration of that than last week’s sharp selloff, which has been speculatively attributed to MSTR shorts getting margin called.

If so, it means that bitcoin went down because MSTR went up (because bitcoin went up) — and now that MSTR is up, Michael Saylor can sell more convertible bonds to buy more bitcoin, which may be why bitcoin went back up again. 

Markets remain undefeated.

Q: Should corporations hold bitcoin?

Corporations hold cash on their balance sheets mostly to meet future capex and financing needs. 

So, unless a corporation thinks their future capex or financing will be denominated in bitcoin, I don’t know why they would want to hold any.

Michael Saylor, of course, disagrees — at the Atlantis Bitcoin conference the week before last, he said corporations “will HODL,” as will banks, non-profits and governments.

His basis for that prediction was simply that “everyone needs bitcoin” because bitcoin provides emotional, mental, physical and economic security.

Also, Bitcoin ends war. 

If so, maybe we don’t even need corporations? 

Q: Are memecoins financial nihilism?

Only if you take them as seriously as Michael Saylor takes Bitcoin, which you should not.

Some memecoin believers are trying to rebrand them as “culture” or “community” coins. 

Others rationalize that buying memecoins is akin to investing in a brand or, more generally, the “attention economy.”

I even saw one commentary asserting that memecoins are as legitimate as Social Security because they’re both Ponzis (now that is financial nihilism).

They are all overthinking it. 

Everything you need to know about memecoins is right in the name: Memecoins are coins that let you trade memes.

In this, they are the purest possible distillation of Keynes' beauty contest — the only reason to ever buy a memecoin is because you think other people will buy it after you.

That’s an entertaining thing to do and generally harmless as long as everyone knows what game they’re playing, which I think they do.

More so at least than with the rest of crypto, where there’s a lot more room for confusion — it’s harder to explain why someone would buy a pure governance token than why someone would buy a memecoin.

I might even argue that memecoins are one of the most honest things in crypto — and also more honest than large parts of TradFi and at least as honest as a Vegas casino.

Except for the ones trying to scam you, of which there are a lot.

Q: Should I YOLO into memecoin presales?

That is definitely the quickest way to get scammed, but I can see why you might risk it:

The memecoin BOME exploded from a market capitalization of $0 to $1.5 billion immediately after its presale this week. 

(Perhaps even more impressively, it’s done $1.2 billion of trading volume over the last 24 hours, nearly double its current market cap.)

The BOME success has created a mini-boom in memecoin presales, which are effectively IMOs: initial memecoin offerings. 

However, unlike IPOs, where you send money to a company, or ICOs, where you send money to a smart contract, with IMOs, you send money to a person — who may or may not do with it what they said they would.

Presale investors in the SLERF memecoin, for example, lost $10 million this week when the coin’s creator accidentally-on-purpose burned the SOL tokens they had contributed.

No, this is not what John Maynard Keynes would want us devoting our intelligences to, but it does make a degree of sense: The one thing you need to launch a memecoin is liquidity for the liquidity pool, and the one thing you need for a memecoin to go up is attention.

Presales provide both liquidity and attention, so they’re probably here to stay.

Q: How can there be so many billion-dollar memecoins?

There are seven of them now, but they’re only “worth” that if you go by market capitalization, which you probably shouldn’t.

On the most recent 0xresearch podcast, Blockworks analyst Ren Yu Kong suggested instead looking at liquidity pools — and that suddenly made memecoin “valuations” make more sense to me.

When you buy a memecoin on a decentralized exchange, you put money (USDC, say) into a liquidity pool and take a memecoin out.

The USDC in the liquidity pool therefore represents the amount of real money that has been put into a memecoin.

The memecoin DEGEN, for example, has a liquidity pool of $6 million, which consists of half DEGEN tokens and half real money (ETH, in this instance).

This means that $3 million of real money has been “invested” into DEGEN.

That may not sound like a lot, but it’s been enough to create $280 million of market capitalization.

I find this both bullish and bearish: It demonstrates both how little it takes to send a token to a huge market cap and how little it would take to send it to zero.

For holders of a memecoin to realize anywhere near its stated market capitalization, they will have to exit one at a time, in an orderly fashion — which seems unlikely.

Q: Now do WIF.

I’d like to, but once a coin starts trading on centralized exchanges (which have limit order books instead of liquidity pools) the calculation doesn’t work — it’s only the liquidity pools on decentralized exchanges that let you see how much real money has been put into a coin.

But, just for the sake of argument, if we assumed WIF had the same ratio of market cap to liquidity as DEGEN (~100:1), we’d estimate that there’s been $22 million of real money “invested” in WIF.

That might be orders of magnitude off, but it makes more sense to me than WIF’s $2.2 billion market cap.

Also, it would mean that, if every memecoin went to zero tomorrow, the real damage to holders would be only $530 million — not the $53 billion CoinGecko reports as their collective market capitalization.

This calculation is not entirely scientific, however — it excludes the incalculable cost of all the entertainment we’d miss out on.

― Byron Gilliam

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