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“It's anything that you can say spreads through the population in a cultural way, like an epidemic.”

— Richard Dawkins on the definition of memes

Thursday relative value mailbag

Q: Why is Peanut the Squirrel eight times more valuable than First Convicted RACCON?

I don’t know, but these are the important questions we now need to be focused on.

To recap: The memecoin called First Convicted RACCON (FRED) was created in honor of Peanut the Squirrel’s adopted brother, Fred, who shared Peanut’s tragic fate of being euthanized by jackbooted bureaucrats from the heartless Department of Environmental Conservation of New York State — so you’d think their memecoins should be similarly valued.

They’re not. 

Even after an 80% rally this morning, Fred’s coin is still worth only $250 million, an inexplicable discount to PNUT’s hefty $2 billion valuation.

It’s possible that value investors will compress that discount over time, but to get conviction on a long FRED trade you’d have to do some hard work on the relative cuteness of raccoons vs. squirrels and how much attention the sadly departed brothers are generating on social media.

I’m only half kidding — no one does any “work” on memecoins.

But that is, in fact, how memecoin traders think and memecoins are ruling crypto again, so it’s important to understand that mindset.

If nothing else, the FRED token’s deliberate misspelling of “raccoon” is a timely reminder that this is the phase of the market in which the only way to make money in crypto is to lower your IQ.

And if you think all of this is crazy, I agree: There’s no way a squirrel in a cowboy hat is eight times cuter than a raccoon drinking coffee.

That raccoon is adorable!

(Not financial advice.)

Q: What hits an all-time high first, Dogecoin or Ethereum?

I don’t know, but the fact that that’s a reasonable question to ask might tell you all you need to know about the current state of the crypto market. 

Both DOGE and ETH are about 50% below their all-time highs — an amazing accomplishment for DOGE holders and a bitter disappointment for ETH holders.

I’d like to say ETH will return to its highs first because I want the world to make sense. 

But crypto is essentially an attention economy and DOGE will be getting a lot of attention over the next few months as our new “Secretary of Cost Cutting,” Elon Musk, promotes his work at the unofficial Department of Governmental Efficiency (aka, D.O.G.E.).

By contrast, Justin Drake’s five-year plan for Ethereum, whatever its technical merits, feels out of step with the Trump 2.0 ethos of acceleration and breaking things.

Also, to get back to its highs, ETH would have to add $150 billion in market cap, which feels like a heavy lift, vs. DOGE, which would only have to add $30 billion.

So, I don’t know. I guess I’d bet on DOGE to get there first.

Q: Will Elon’s D.O.G.E. fix the US government?

Maybe, but I don't think his Twitter playbook of firing everyone will work this time.

The federal government currently employs about three million people, which sounds like a lot only until you see that the number has flatlined for decades — the federal government employed 2.9 million federal workers in 1969.

The federal budget increased from about $200 billion in 1969 to $6.2 trillion in 2023, which means that, adjusted for inflation, essentially the same number of people are now overseeing a 4x increase in spending. 

So I’m not sure how much scope there is to save money by making federal agencies “much smaller,” as Musk told Joe Rogan he intended to do.

There is of course immense scope to “clear the decks” of excessive regulations, as he also promised, but most of those regulations are mandated by Congress so it will be no easy task.

Also, some efficiency gains would initially cost money to implement, like replacing the Kennedy-era software that the IRS still runs on. 

I’m glad that efficiency is now a government priority, but I suspect Elon’s going to find it a slog.

Q: Is that bearish for Dogecoin?

Please see above about lowering your IQ.

“Government efficiency” is now, weirdly, the world’s second hottest meme (after Bitcoin) and Elon is going to ensure it stays that way. 

That’s really all you need to know about DOGE and D.O.G.E.

Q: Why are memecoins so good, anyway?

Just vibes, I think.

I’d note that memecoins didn’t do too much immediately after the election — even MAGA-aligned PEPE made most of its post-election gains just yesterday.

That muted reaction made sense because memecoins were already unregulated, so what’s the change?

The change is simply that the first crypto president has been elected, the OG memecoin is being seriously discussed as a strategic asset that the US government may soon be buying, and crypto is back in the spotlight.

Memecoins, it turns out, are a way to express your general enthusiasm about these things.

Also, what else are you going to buy?

People want things that go up and recent history shows that non-memecoins (tokens with explicit utility) are typically launched with a low float (the percent of tokens available to trade), which leads to high FDVs (the valuation including tokens not yet issued), which in turn leads to tokens going down.

Debating squirrels vs. raccoons is more fun.

Q: Who's to blame for overpriced token launches?

The buyers!

There’s a weird dynamic in crypto where people blame sellers for selling too high, which makes no sense to me.

Has anyone ever blamed a company for having a stock price that's too high?

Crypto investors seem to think they're entitled to fairly priced tokens without having to do the work to figure out for themselves whether or not the token is fairly priced.

That’s not how it works with stocks, so I don’t know why people think it should work that way with tokens.

Q: Should ETH outperform BTC now?

That would be logical seeing as Ethereum should be the more direct beneficiary of less regulation and more institutional adoption.

Also, activity on Ethereum is currently booming. 

But I think most people have come around to the view that ETH’s valuation will mostly be a function of its perceived moneyness and, on that front, Bitcoin is impossible to beat.

Bitcoin has meme’d its way into consideration as a reserve currency for the federal government and now even state governments are considering holding it as a store of value.

ETH may or may not be money (I don’t think it is, but I don’t think Bitcoin is, either), but it’s hard to imagine governments considering ETH as a strategic reserve asset anytime soon.

The Bitcoin meme, by contrast, is spreading its way through the population, like an epidemic. 

That will be difficult to keep up with.

— Byron Gilliam

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