From the perspective of institutional investors, let’s talk about the current crypto market and Meme track

Original author: Honest Mr. Mai (X: @Michael_Liu 93 )

It has been a long time since I wrote such a long article. This is an article with a strong investor flavor. Because the logic is interlocking, it may not be easy to read, but after reading it carefully, it will definitely give you a new understanding of the crypto market and the Meme track. Today, I will try to answer three questions from the perspective of an institutional investor:

1. Has the crypto industry reached mass adoption?

2. Will Meme become the killer application that opens up the mass penetration of the crypto market? What is the underlying logic of the Meme track?

3. At what stage of the cycle is the Meme market today?

1. Has the crypto industry reached mass adoption?

Before talking about Meme, I would like to ask you a controversial question. Do you think the crypto industry has already ushered in large-scale popularization? Regarding this question, I often hear two extreme views. One side says that crypto has ushered in large-scale popularization. Wall Street has entered the market, and retail investors who should buy coins have already bought them. Where are the newcomers entering the market in this cycle? The other side believes that it has not yet been popularized, and often compares it with AI, because the crypto market has not seen a Killer App (killer application) like Chatgpt with more than 200 million users.

I think both sides have their own opinions, but they are actually discussing two different things. One is about mass adoption, and the other is about mass penetration. What is the difference between these two points? I will try to use the history of the development of the Internet in the United States to explain what I want to say.

In 1995, the computer penetration rate in the United States was about 40%, and there were about 85-90 million Americans using computers at that time. At the same time, the Internet penetration rate in the United States was only about 13%, a total of 25 million people. So in 1995, one out of three computers in the United States was connected to the Internet. You may find it hard to imagine what the remaining two computers were doing today? The remaining two computers were used as calculators and typewriters at the time (because computers began to be popularized in work scenarios and gradually entered the home scenario at the end of the 20th century).

Why did I choose 1995 as an example? Because the 40% computer penetration rate in the United States in 1995 is exactly the same as the penetration rate of digital currency in the United States today. Yes, in 2024, the number of digital currency holders in the United States will account for 40% of the total U.S. population, and the total number of currency holders will be about 93 million. Next, if we compare on-chain with on-the-net, we can see that Phantom, Solanas largest wallet, has about 7 million monthly active wallets, while Metamask, Ethereums largest wallet, has about 30 million monthly active wallets (both take the highest value of the most recent available data). Assuming that Americans account for half of the on-chain users, and assuming that each person has 3 wallets, a rough estimate is that there are currently about 6 million on-chain users in the United States. Of course, this estimate is definitely not completely accurate, because there are many other wallets, and the average number of wallets per person may exceed 3. The assumption that the United States accounts for half of the worlds on-chain players is not necessarily accurate, but because I am taking optimistic assumptions, no matter how you calculate it, the number of on-chain people in the United States will most likely not exceed 10 million, which is about 3% of the total US population today.

Therefore, the crypto industry today is in an even more awkward position than the Internet industry in 1995. The 40% digital currency penetration rate is obviously popular enough, but the on-chain penetration rate of less than 3% is obviously too low, even lower than the 13% Internet penetration rate in 1995.

That’s why I said that when everyone is discussing whether crypto has been mass adopted, both sides are right, but the dimensions of the discussion are different. One side is talking about the popularity of “computers = digital currency”, while the other side is talking about the penetration rate of “Internet = on-chain applications”. (It is worth mentioning that the US Internet penetration rate was 3% in 1993, and from 1994 to 2000, the US Internet penetration rate rapidly increased from 3% to 43%. So what happened in 1994? Netscape Navigator appeared, which was the first killer application in the Internet era. A killer application can really promote the rapid growth of the overall penetration rate of the industry)

As I was writing this article at my desk, I could imagine that the first batch of seniors who went online in 1995 must have discussed the same issues as us today, thinking that computers were already so popular that there seemed to be nothing that could not be done without computers. Going online was really a waste of time, and it was purely for love. Isn’t this how we feel in the crypto industry today?

So what happened between the emergence of the Internet and its widespread adoption? The first batch of Internet users must have been the most geeky people, using the first batch of the most useless applications on the Internet, such as online radio, online TV, and online phone books, which were pseudo-needs that had already been met offline at the time. They went online purely because they loved new things.

As the first batch of computer users connected to the Internet, the first batch of killer applications gradually emerged, such as email and e-commerce (although e-commerce at that time was still much more troublesome than offline, and it could be called a pseudo-demand at the time. For example, Amazon realized this when it first started selling books. The only way for them to compete with offline bookstores was to sell niche books that offline bookstores rarely sold). As the base of Internet users grows, user dividends bring the possibility of new killer applications. For example, when you only have one friend using WeChat and you have 100 friends using WeChat, your motivation to download WeChat is completely incomparable (in many cases, whether an application is a killer or not depends on the user base. Phone, email, and social networks are the most typical examples).

So you can see that after the Internet user base reached the threshold of quantitative change, the speed of innovation began to accelerate, and killer applications appeared more and more frequently. Every one or two years, there is a wave of innovation. The first batch of VC investors in China who have experienced the 20 years from 2000 to 2020 should be most empathetic to the evolution of this process (I entered the industry in 2016 and happened to step on the tail end of the Internet era).

2. Will Meme become the killer application that opens up the mass penetration of the crypto market? What is the underlying logic of the Meme track?

If we take the Internet era as a reference, the explosion of the Internet must be based on the premise that computers are already popular enough. Today, for the encryption industry, with a penetration rate of 40%, the encryption industry is already popular enough, but we are like the first batch of Internet users in 1995. We are still looking for the killer application that can bring hundreds of millions of users into the chain, and I think I see the shadow of the killer application in Meme.

I have talked about this concept in my space before. I think meme is a new form of streaming media, a new era of TikTok. Have you noticed that since you started playing http://pump.fun , the time you spend on TikTok has been decreasing? Or even no longer? Both are the products of the attention economy and the background of the times. TikTok is a product of the increasingly fragmented time of young people, who still need short and timely dopamine in the context of work and life. It is fast entertainment, while meme is a form of entertainment that young people urgently need to gamble in the context of social class solidification. It is poor entertainment. One satisfies lust and laziness, while the other satisfies greed. In essence, they are both dopamine businesses that satisfy the most basic original sin of human nature. This is why everyone is happy to watch TikTok or pump 24 hours a day, because it is really addictive.

If I compare the various nouns of Tik Tok with memes, you will understand better:

1. Content owner = dev/project owner (content production = meme production)

2. Tik Tok push algorithm = meme kol (the push algorithm determines what content you see, and the meme kol determines what meme coins you will pay attention to, both of which are the core positions for distributing traffic)

3. Traffic monetization = market makers (those who attract more attention to their own memes by pumping or dumping the market, and help the project owners monetize in the process)

4. Advertising = dexscreener, CMC, Tiktok advertising (activity to attract retail investors’ attention and traffic)

5. Professionally produced content (PGC) = Strong market maker

6. User Generated Content (UGC) = Pure CTO

7. Spam video = Rug disk if

If you can understand the above logic, then we can use the development path of Tik Tok as a guide for the meme industry. The meme industry is likely to have the following trends in the future:

1. The division of labor in the industrial chain will become more and more detailed and professional. The unprofessionals in each link will gradually be eliminated, including dev, project parties, kols, and market makers. This is a market where the strong will always be strong.

2. At the beginning, there was UGC content (pure community plate), and then the traffic will be more and more concentrated at the top, and the new content will be more and more PGC (strong market maker plate), and UGC content will gradually fade out of view (but you can still see PGC plates hidden as UGC, but actually made by professional teams, because some viewers like the UGC style, and these plates are also to cater to this group of people). The logic is very simple. On Solana, any plate that can take off must be driven by the banker behind the scenes. The high control of chips attracts everyones attention. Only a professional marketing team can tell the story well. Then, in the process of rising, the banker will gradually disperse the chips, and finally form a strong community over time. Therefore, it must be a strong banker first, and then a strong community will be established later. Therefore, I have emphasized countless times in space that a good meme coin must be achieved by the banker and retail investors. You have to look for a good banker to look at the quality of the content produced, the market makers trading methods, and the teams dedication to operating the community.

3. KOLs ultimately compete on the ability to match high-quality content. Those who do a good job in project research and can find the best content to push to fans and make money for fans will have more traffic, and can then match better content, forming a positive cycle. Those who have carefully studied Murad will understand how he plays. If your Douyin recommendation algorithm pushes you junk videos every day, if you are a girl, you will be pushed tea-flavored beautiful women dancing videos, and if you are a boy, you will be pushed how to choose cosmetics, you will most likely continue to click not interested to adjust your recommendation algorithm. This is why I think there will be fewer and fewer rug devs in the future (as long as you dont go to the inner market to pan for gold), because KOLs are slowly becoming more professional, and KOLs will not want to call junk plates. Every call is a blow to their most valuable resource traffic, so it will be difficult for these rug devs to be pushed by KOLs in the future (of course, the junk such as matrix accounts and sickle KOLs will always exist, but every time he cheats, his carrying goods ability will drop by an order of magnitude until no one pays attention to them anymore)

4. The top content owners will gather more and more traffic, and the meme track is also like this. The top plates will crazily suck the blood of the long-tail plates. In the future, the meme track will have Simba, Xiao Yangge, Li Jiaqi, Weiya and other top Meme plates. Think about those friends who speculate on memes at the second level. Are the memes that everyone wants to stock up all PEPE, WIF, POPCAT, SPX, which have demonstrated their strength and have very large communities? (But this does not mean that there will not be new content owners running out, there will definitely be new memes coming out)

I present the underlying logic so nakedly, which may cause discomfort to some people, but there is no way to avoid it because it is the fact, and such a trend has already occurred. You must first understand the truth of the rules of the game before you can win in this game, right?

3. What stage of the cycle is the Meme market in today?

Lets first take a look at Pump Funs current user data, which can be checked on dune. Pump Fun currently has about 150,000 daily active wallets. When the solana meme was at its hottest two weeks ago, the number of daily active wallets reached 200,000. If we divide it by the total monthly active users of Phantom that we talked about before to calculate a rough penetration rate, Pump Funs daily active users currently account for 2.9% of Phantoms user base. So considering only the user base of Phantom wallet, Pump Fun is far from being mass penetrated.

In addition to looking at the number of participants in internal games such as pump fun, we can also look at the number of holders of the largest meme coins to roughly understand the number of players on the chain (many addresses are fake, so the actual result will be even less, I personally judge that the number of addresses/number of people is at least 2-3 times). Currently, the number of wallets holding WIF is 190,000, Popcat is 110,000, Bonk is 11,000, PEPE is 270,000, and SPX is 25,000 (this somewhat exposes whether the SPX community that Murad has been calling for is really awesome)

So whether you look at the user data of Pump Fun or the wallet data of the top blue-chip meme, you will roughly get a number between 200,000 and 300,000. Therefore, the penetration rate of Meme for users who already have wallets on the chain is between 3-5%. Among this group of users who have already been on the chain, there are still millions of people who have not been penetrated by Meme, which is 20-30 times the current size of Meme users.

If we assume that Meme will bring some of the users who originally traded on exchanges onto the chain, then the number we need to refer to is the total number of crypto users in the world, 500-600 million. That is to say, a 1% penetration rate can bring 20-30 times of incremental users, and 10% can bring 200-300 times.

And if we think that Meme is the real killer application of Web3 and will become the new era of streaming media, the TikTok of web3, we can look at the data of TikTok in November 2024, with 700 million daily active users, which is 2000-3000 times the total number of meme players in the world.

This is the best time for crypto entrepreneurs and investors.

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