Empire Newsletter: It’s memecoins all the way down

Memecoins show the way

What are brand-new projects to do in such a topsy-turvy market, one that’s either teetering on the brink of altcoin season or about to veer off into another crypto winter?

It’s been about seven months since a fake news tweet from Cointelegraph pushed crypto into overdrive. The market is clearly still confused.

The salacious tweet — which reported that the SEC had approved spot bitcoin ETFs for US markets — confirmed a major bitcoin rally that had been brewing all through 2023.

Bitcoin surged by two-thirds in the months between the post and official SEC approval in early January, and then by another 80% after the fact.

Crypto has since been outright messy. Memecoin, DePIN and computing marketplace projects have pumped, privacy coins have dumped, and ETH is stuck in no-man’s land awaiting approval of its own spot ETFs a la BlackRock’s IBIT.

As Jason touches on in today’s Empire podcast episode, creative ways of issuing new tokens have emerged between this cycle and the last. 

Startups and protocol stewards commonly run private token sales in funding rounds with venture capitalists — which apparently don’t piss off the SEC — before airdropping slices of the circulating supply to users and other early adopters (read: those pesky airdrop farmers).

No ICO means no SEC lawsuits, the thinking goes, while the supply ends up with folks who actively use the protocols they power. Seems like a win-win.

A byproduct of this New Style of doing crypto business is that token supplies are often drip-dropped into the market over a number of years. It’s now relatively routine for tokens to launch with less than 25% of the supply circulating — and in some cases much less. 

The rest is kept by the team, early backers and other insiders to fund development, marketing and, eventually, provide ROI. What results is a number of low-float tokens with massively high fully-diluted valuations compared to their actual market caps, a blueprint largely perfected by Sam Bankman-Fried and Alameda Research with Serum and other “Sam Coins.”

It all begs the question of whether there’s any correlation between price performance and low-float supply dynamics. 

There are individual cases: dYdX, for instance, had only 18% of the supply circulating when Cointelegraph’s fake news tweet confirmed the bitcoin bull market and has since released an additional 34% of the supply. dYdX’s price against bitcoin has collapsed by more than half in that time. 

The airdropped Starknet token is another — it only has 7.3% circulating supply and its bitcoin ratio has also halved.

But after analyzing the current top 100 cryptocurrencies by market cap, as well as another two dozen or so tokens featured in the top 100 just before the bitcoin bull run really kicked off, broader correlation is harder to find.

Tokens at the top of the chart have high floats. Tokens to the right of the dotted line have beaten bitcoin. Brighter circles have increased their supplies more than darker ones. And larger circles have grown bigger market caps.

After removing a few outliers, about 40% of the top end of the market have outperformed bitcoin since October. At that time, the median circulating supply for tokens that have gone onto beat bitcoin was 70%. For underperformers, it was 79%. Not exactly a huge difference. Low float cryptocurrencies generally did as well as high floats.

Then, the median performance against bitcoin for tokens with circulating supplies of 80% or more was minus 21%. So, high-float tokens appear just as susceptible to losing significant ground as low-floats.

Even projects with some of the lowest floats — 19 tokens with under 25% of the supply circulating — on average have beaten BTC by 25%, while the median was almost 1% ahead.

But for standout performers, there does appear to be a link. Bitcoin ratios of nearly a dozen top cryptocurrencies have more than tripled since October. Their median circulating supply was 94% before the rally.

All those stars were memecoins and DePIN projects, which aside from Bittensor, all had a large majority of their supplies already circulating. 

A great irony of crypto in 2024 is that perhaps, it’s time to treat memecoin launches as the new standard moving forward. 

— David Canellis

Data Center

• Solana (a layer-1) and Uniswap (a DEX) are neck-and-neck for fees generated in the past seven days — both $10 million.
• Ethereum only has 174 validators waiting in the queue, down from more than 22,000 this time last month. Active validators were at an all-time high yesterday: 1,014,915.
• Bitcoin transactions are more than 80% standard BTC transfers, plugging the gap left by lower interest in Runes and Ordinals.
• Pepe’s leading the memestocks, gaining 18% over the past 24 hours, according to CoinGecko.
• GameStop’s stock is above $65 in premarket trading, on pace to shatter its 52-week high of $38.

Deja vu

He’s back. 

I am, of course, talking about the man, the myth, the legend: Roaring Kitty. 

The return of Keith Gill, the man behind the powerful online persona, sent memestocks and memecoins soaring on Monday. 

We were left asking one big question: Is history repeating itself? The answer is…maybe? 

We’re nowhere near the 2021 memestock mania, when GameStop’s stock rose to new heights. And it’s not just the retail investors who benefited from the memestock focus either back then or right now. 

Pepe, Dogecoin, FLOKI, Dogwifhat and, of course, some random GME-themed memecoins (with no affiliation with the company) gained after Roaring Kitty posted a video suggesting his return.

That’s not even mentioning that GameStop’s market cap is back over $9 billion, or that the stock closed up 74% on Monday. AMC, another memestock favorite, closed up 78%.

A number of factors made 2021 unique. I’m not saying it’s impossible in this cycle, but the threads may be more similar instead of the exact same.

Memecoins dominate today’s market narrative, whereas 2021 saw NFTs booming — nowadays, not so much. 

There are macro differences, too. Zooming out of crypto, interest rates are sky high with the Federal Reserve holding on to the 5.25%-and-5.50% range since the summer of 2023. Inflation still runs rampant. Retail investors simply aren’t seeing the same economic environment, not to mention the pandemic that was still a thing in 2021. 

Back then, interest rates were so low that millennials could actually afford to buy houses.

The point is: We’re not coming out of lockdown, and we’re seeing crypto bounce back with some weakness after a rough bear market. Of course, that’s not going to stop folks who want to jump into either the memestocks or memecoins. But the conditions don’t look to be ripe enough for a repeat. 

Just remember: Diamond hands may be forever, but these cycles tend to have a short — and volatile — lifespan.

— Katherine Ross

The Works

• Tornado Cash developer Alexey Pertsev was found guilty of money laundering by a Dutch court this morning. 
• A new crypto-focused political action committee launched, according to Blockworks’ Casey Wagner. 
• A bitcoin mining company said to have ties to China was ordered by the US government to divest land holdings near a nuclear missile base, according to CNBC. 
• Crypto prime brokerage Falcon Labs settled with the CFTC for $1.7 million. The regulator said Falcon Labs failed to register as a futures commission merchant. 
• OpenAI released a new, upgraded AI model called ChatGPT-4o, according to CNN. 

The Morning Riff

Here’s an interesting find: Speculators on the prediction market Polymarket seem to be giving US President Joe Biden similar chances at victory than challenger Donald Trump in a new, major national poll. 

On Polymarket right now — in a market that has earned more than $125 million worth of bets — Trump leads Biden 49% to 44%. Robert F. Kennedy Jr., meanwhile, pulls a mere 3% — one percentage point less than Michelle Obama, wife of former president Barack Obama.

Read more: Stand With Crypto PAC launches as industry interest in campaign funding ramps up 

Let’s look at the new New York Times poll from this week.

Trump leads in an array of battleground states, per the Times/Siena College/Philadelphia Inquirer poll. In two of those states, Trump pulls 49% to Biden’s 42%. Biden fares best in Wisconsin, pulling 47% to Trump’s 45%. 

Interestingly, RFK Jr. polled around 10% in each of the battleground states — a marker of strength for the independent candidate and much stronger than what the folks on Polymarket are saying. 

The polls and prediction market aren’t moving in tandem, but at some points, they rhyme. To be sure, the crypto-powered Polymarket has been giving Trump strong chances for months. But it’s a fascinating lens for a major political matchup — I’ll be watching as the bets continue to develop. Stay tuned. 

— Michael McSweeney

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