I missed $DOGE. Then I missed Shiba Inu, or $SHIB. I used to think, 'Ah, that's stupid; I'll never buy a meme coin.' Until recently, I missed $PEPE. It has become a recurring pattern. The fact that $DOGE can hold its value for years is interesting. I'm curious.
At first, I'm writing this essay to help myself make sense of the meme coin phenomenon—why do meme coins hold value? Initially, the answer lacks substantial usefulness. And I only publish useful essays.
I decided to still publish this essay because the fundamental understanding of memes as a value system is very useful. The discussion expands to the concept of a store of value. It's important because it's the only way to retain wealth for your future self and kids.
How sad it is that your ancestors sacrificed their energy, time, and lives to hoard seashells for you, only for your great-grandfather to throw them away because seashells are now worthless. Let's avoid repeating the same mistake.
Why Meme Coins Are Valuable?
Way back in 1988, Timothy C. May predicted in 'The Crypto Anarchist Manifesto' that a new era was coming. He imagined a world where words and pictures would have a liquid market because of cryptography. Now, meme coins and NFTs are the examples.
The value of meme coins is intangible, as it's tied to what's relatable, such as culture, people's beliefs, and trends. Just like meme stocks, it's not about the business; the value comes from culture and trends. The free market reflects intangible values in market prices.
Bitcoin
I consider Bitcoin a meme coin. Historical value: It's the first crypto coin that ever existed. Cultural trend: It expresses how disappointed people are with the monetary system following the 2008 crisis.
Gold
Throughout history, humans changed the main item for storing value multiple times until we settled on gold for thousands of years. Balaji Viswanathan's writing here is perfect. In conclusion of his writing, gold is the perfect physical store of value. And I still think gold is a meme.
Gold's worth is influenced by fear. When the economy is bullish, people tend to sell gold for riskier assets. When the economy or the world is volatile, people tend to turn to gold as a safe haven. This emotional pull can make the price of gold go up or down; gold is a meme. It depends on how people feel.
Pepe
Pepe is used by many internet users as a way to express themselves. This is why $PEPE, connected to Pepe, became an important meme coin.
When $PEPE first came out, only a few people knew about it. Its value wasn't huge, and only a small group cared about it. Then it rose to a $1 million market cap, and people started talking about it. Then it rose to $10 million, and some people shook their heads at how stupid it is. Then it rose to $100 million, and some people sold their $PEPE out of fear. "It's a bubble!" they said. $PEPE exceeded everyone's expectations. Its value skyrocketed to an unbelievable level, crossing the billion-dollar mark.
If you had known that Pepe was super popular, that $PEPE was the first coin connected to Pepe that gained significant traction, and had considered the relative valuation between $PEPE and other popular meme coins, you would have bought $PEPE and gained a 1000x return by now.
Risks
With more attention comes mass scrutiny, and people start to look beyond just the meme. How it works, how many are out there, who has them, and lots of others.
Memes are like the survival of the fittest. Only the strongest survive, and the rest disappear. Early meme coins' prices go up and down like a wild ride, where screams of joy mix with screams of terror.
Contemplate
Can you predict which of the three—gold, bitcoin, and Pepe—will remain as a store of value? Do you think gold will stay relatable for the next generation? What about the generation after that?
Here's what I think:
Relatability
Memes find their place, either becoming important or not mattering at all. If it loses relatability, its value will plummet.
Gold, Bitcoin, Pepe, and Doge will become obsolete if the people who can relate to them are gone.
Supply
One issue with gold is that we lack complete knowledge of its total supply. The value could become heavily diluted if we were to discover new mines on Earth or on other planets.
Backing
The US dollar is strong because it's backed by the US, which is currently the country with the strongest economy and military. Some people believe that US Treasury bonds (T-bonds) are a safer store of value than gold.
Decentralization
Remaining a store of value for far too long will result in centralization. I believe it's in human nature to avoid excessive centralization. Empires and superpowers never remain 'the best' for too long. Dollars now account for 58% of global central bank reserves, down from 73% as of 2000.
The Takeaways
The US dollar, gold, Bitcoin, meme stocks, and meme coins are all memes. They're valuable because of people's beliefs.
What matters is what people consider valuable. So, when thinking about store of value, let's pay more attention to people.
As the younger generation replaces the older one in terms of influence and decision-making. What will the people of the future value?