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Is an old VC who has gone through three cycles anxious about this round of meme?

Is an old VC who has gone through three cycles anxious about this round of meme?

ChaincatcherChaincatcher2024/11/22 06:22
By:Recommended Reading

Meme has become the most significant and unavoidable track-level opportunity in our industry.

Author: YettaS

"Yetta, are you anxious in this market?" This was a serious question posed to me during a dinner gathering. I was momentarily taken aback, not understanding why they thought we should be anxious, "Because many people believe that with the rise of memes, VC coins are doomed, haha." The biggest topic of discussion at DeVCon this time was indeed memes. Colleagues joked that discussing the primary market delays trading memes, and some even asked if we included memes in our asset allocation.

To be honest, we are not very anxious, or rather, we anticipated this situation at the beginning of the year. Primitive is a evergreen fund without external funding, which allows us to view this industry over a longer time horizon. We also do not have the pressure of capital allocation, and we do not need to explain to LPs who do not understand our industry why we invest in any track (often, LPs can be a huge pressure). Everything we do is driven by our curiosity to learn where the value and talent flow in this industry.

In the market of Crypto, which is becoming increasingly primary and secondary, and where the secondary market is bubbling, the definition of VC is actually closer to its essence: Bet on Things with Venture Return. Following any ideology or participating in any political struggle is meaningless; learning from the market is key.

First, let me share our understanding of the structural changes in the industry

At the beginning of this year, we conducted a lot of reviews on the structural changes in the industry and wrote an internal report titled "Cycle of Front Running." TLDR: The polarization in our industry is becoming more severe. On one hand, the industry is growing larger, with TradFi integrating a large amount of Crypto assets into Wall Street through compliant means like ETFs. This portion of liquidity has been siphoned off and is difficult to convert back into our on-site funds; on the other hand, the strong expansion of populist capitalism and the further compression of attention economy have made the entire financialization process increasingly crude and simple, with the most Crypto Native approach becoming direct meme trading, an area that TradFi cannot touch.

Is an old VC who has gone through three cycles anxious about this round of meme? image 0

In this macroeconomic and social context, on-site liquidity is continuously shrinking. In the past, we said that the Barbell Strategy hoped for a fusion of both ends, but the result has been the opposite; our polarization has intensified. Thus, the middle state of our industry is becoming increasingly difficult.

Who do these middle states include? They include all institutions that have risen due to the benefits of the wild era. Offshore CEXs, Trading Firms, Crypto financial service providers, and VCs are all unable to escape.

This structural change will make Offshore CEXs anxious. CME's Future OI has already surpassed Binance. If mainstream coins are increasingly traded in compliant trading venues due to TradFi's entry, and memes can pump projects worth over 1B on-chain, is Binance's space being squeezed?

Aside from Offshore CEXs, how will those Market Makers who previously relied on Crypto respond when high-frequency quantitative teams from Wall Street come in with their own infrastructure and capital? As they decline, the presence of third-party financial institutions serving them also weakens, not to mention VCs who cannot trade actively.

This polarization and liquidity squeeze is the fundamental change in our industry. Whoever finds the breakthrough point will prevail.

Secondly, what exactly is wrong with VC Tokens?

I completely understand the market's sentiment towards VC Tokens. Projects launch with extremely high FDV, and after going live, continuous unlocking leads to sell-offs for profit. Since it's all a casino, why not go to a relatively fairer casino to play Meme PVP, where if I lose, I can only blame my slow hands, instead of helping a multi-billion dollar VC coin take the fall?

What is the essence behind this issue? It is that our industry's Liquidity Supply Chain has problems.

Why can Solana keep reaching ATH? Because they have real products that generate continuous earnings in Sol, thus transforming the user Community into a Trading Community, and the positive flywheel becomes a kind of self-fulfilling prophecy, which is key to forming Buy Pressure.

The DeFi of the last cycle was actually similar; products launched with minor innovations were fun, DEXs created liquidity for continuous value discovery, and when the product Community and the trading Community formed a consensus, CEX listings further released liquidity, achieving a three-way win for projects, communities, and CEXs.

A healthy ecosystem is one where those playing on-chain are willing to buy coins and are also willing to evangelize, thus creating a positive cycle in this liquidity supply chain.

And now? The problem with VC Tokens is the division between these two Communities. The mainnet launches with TGE, but the product has not landed, and the Community is only there for airdrops, leading to sell pressure; while in the last cycle, we had Sam/Su helping us leverage buy into Alts, this cycle has seen leverage basically cleared; at the same time, many VCs raised a lot of funds in the last bull market, facing pressure to deploy, and to show LPs attractive returns, they had to continuously push up project valuations.

Is an old VC who has gone through three cycles anxious about this round of meme? image 1

This has led to the current situation of VC Tokens, launching at high valuations with no buying pressure, leaving nothing but declines.

This naturally explains the logic behind the emergence of memes. Since the projects invested by VCs cannot land, why not trade something with a lower valuation that is fairer?

Memes have become the most significant and unavoidable opportunity in our industry

Under the polarization analyzed at the beginning of this article, memes have become one of the most significant tracks in our industry.

I always thought memes were purely speculative, but until this time, I realized I was wrong. They are a medium that carries cultural trends. Their value lies not in specific functions and technologies, but in their unique ability to embody collective consciousness, emotions, and recognition, which is akin to the logic of religion. Beneath the absurd surface lies a profound social psychological need and value concept; what they do is tokenize, productize, and capitalize on thoughts and emotions.

In other words, the core of their product is the thoughts and narratives they carry, and the size of these thoughts and narratives determines the ceiling of a meme. Cutting-edge technology, idol worship, IP emotions, subcultural trends—analyzing their potential is just like how VCs analyze the prospects of a product's track and its position within that track.

For memes, the token is its product. Thus, what it needs to do around the product is to promote the interaction between price and community. Price, in a sense, is the iterative development of the product, building a solid community foundation through the ups and downs of price, turning Paper Hands into Diamond Hands, encouraging them to spread the word, and ultimately completing the self-fulfilling prophecy.

In this regard, Meme Tokens actually have a huge advantage that VC Tokens do not possess. Because the token is the product itself, the product Community and the trading Community merge into one, forming a synergy.

Due to the low issuance capital of memes, the investment signal-to-noise ratio is very low, and it cannot be analyzed from tangible product forms. It requires an excellent taste for understanding thoughts and market emotions. I am still striving to learn whether there is a structured methodology to study this track, so as to select targets in a very low signal-to-noise ratio. If so, what kind of targets are suitable for our intervention and when to intervene.

But I firmly believe that memes will become a cross-cycle opportunity because they are essentially a cultural phenomenon in the digital age. As thoughts remain immortal and emotions iterate, they will never run dry.

More importantly, I have always believed that providing opportunities for marginalized individuals to become wealthy is where our industry finds its vitality. Before this wave of memes, it was said that the requirements for entrepreneurs in this cycle were ten times greater than before, and it seemed that investments had all been consumed by VCs, with community and retail emotions being greatly suppressed. However, through memes, young people can achieve 100x opportunities through early positioning. Anti-authoritarianism is one of the core spirits of Crypto, and I believe it will always exist.

How long can memes last in this cycle?

When everyone is passionately willing to sacrifice for the community and believes they can earn forever, don't forget that profit-taking will inevitably occur; this is an unchanging truth in the financial industry. Think back to whether the NFT Community was the same: everyone took pride in using monkey avatars, helping them connect with brands, organizing events and collaborations everywhere, NFT parties spread across the globe, and then what?

When various inflated confidence and unrealistic expectations arise, when it seems that holding major coins is not as good as holding memes, when various hacks and rugs appear, we should start to be vigilant. Once our industry lacks greater liquidity opportunities, and BTC begins to face resistance, all enhanced Alpha will fall faster.

By the way, isn't DeSci's logic similar to last cycle's PeopleDAO and the Save Assange movement? Under the banner of "justice," do we have the ability to distinguish between faith and speculation?

In fact, the significant turning point for memes occurred when Binance launched small Neiro. At that time, VC Tokens were in trouble, and the breakthrough came from embracing Community memes, allowing projects, communities, and CEX users to profit, leading to ACT.

However, now the blind liquidity of on-chain memes resembles the competition for TVL after high TVL projects on Binance, similar to the competition after the Ton ecosystem coins with huge user bases on Binance.

CEXs will change their listing strategies based on market expectations, thus guiding the market direction, while our industry, due to low asset issuance costs and liquidity premiums, will inevitably fall into a homogenized competitive chaos, which everyone will eventually become numb to and weary of.

This is the power of cycles.

In the short cycle, do not do anything just because CEX supports it; truly constructive projects for the industry will emerge.

In the long cycle, the bear market will inevitably clear out those ineffective oversupplies, bringing the market back on track.

The market always oscillates between long-termism and short-termism; it is a spectrum, with Main Characters and Memes becoming the two ends of the Barbell, as market sentiments rise and fall.

There is no need to be anxious; just find your own rhythm.

Investing is a game where we make judgments based on our understanding and place our bets. If we are right, we make money; if we are wrong, we review. Always be curious, always be respectful.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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