Uncertainty in crypto cycles from Memecoins and NFTs

Before non-fungible tokens (NFT) came along, the following chart was a pretty good representation of patterns happening in the industry.

The fiat currency largely flowed through Bitcoin and other major exchanges before trickling down to mid caps and eventually to low caps (also affectionately known as “shitcoins”).

A couple of things have changed in the last two years, one being the emergence of NFTs as a digital asset class that fits somewhere in the cycle above.

It is my opinion that NFTs, especially PFPs, are a hybrid of an identity solution, a club, and a fungible token. There are different sizes by market cap, Bored Ape Yacht Club (BAYC) and Azuki are the large portfolio in the NFT market, Mfer’s, Nakamigo’s and Milady’s are mid caps, and then basically the rest make up small caps. Finally, add memecoins into the mix. They really don’t profess to have any use other than posting on social media and having fun!

Fun + memes can now be a digital resource? Yes. We see this by looking at $DOGE, $SHIBA and now $PEPE, which reached a market cap of $150 million in several days. The Milady Maker PFP community is rumored to be behind the rise of the $PEPE memecoin.

Memecoins came back after the Nakamigos and BAYC communities stagnated and caused some big owners to leave the community. That, combined with the boredom of retail crypto people, and boom, on the scene comes memecoin season! It took over for a few days this past week with $PEPE, and others that I won’t really mention because I’m not sure it will become a meta that I’ve loved for a long time. But who knows?

Milady Maker’s PFP assets surged in the past week as the memecoin meta kicked off.

These new digital assets are now throwing several curveballs into the stream, and it remains to be seen where they fit in. One thing I know for sure is that when large caps run, they rise quickly and suck all the liquidity from the mid-lower caps. When they stop running, capital flows back into mid-low caps. This pattern can happen across all classes (NFTs, fungible tokens) and also across categories (PFPs, Game-FI, fungible tokens and utility NFTs), causing the Web3 scene to seem very chaotic.

With these liquidity ebbs and flows causing uncertainty for even the most experienced traders, it is clear that new patterns are emerging in the brave new world of NFTs and memecoins.

Note that the observations presented in this text are not intended as financial advice, but rather the insight of a person who has an interest in recognizing trends and patterns, much like many others in this area.

The Discard 500 NFT index is down over 2% over the past seven days, reflecting a sharp decline in the NFT market. A new memecoin called $PEPE has been trading with volume, causing high transaction fees on Ethereum. NFT volume, on the other hand, has suffered as traders practice patience, with many waiting for fees to normalize.