Replaying DeFi Summer: AI Memecoin Omegacycle

As of the first quarter of 2024, the total circulating market capitalization of the top 10 "AI Tech" tokens is $30.9 billion. On the other hand, the top 10 AI memecoins may have attracted more attention, but their total market capitalization is only $2.54 billion.

I believe the emergence of GOAT and terminal of truths has opened a new category of AI, which is likely to grow 100 times from now on. This is a great opportunity, similar to getting in early during the DeFi Summer of 2020.

Market Opportunity

Memecoin Supercycle + AI Supercycle = AI Memecoin Omegacycle.

Following the crazy surge of NVDA in the first quarter of 2024, many AI tokens are still on a parabolic trajectory despite questions about fundamentals and tokenomics. We see the valuation of the top 10 "AI Tech tokens" exceeding $30 billion, and we haven't even counted the FDV and smaller market cap tokens. I believe this is a "test run" for the Crypto x AI space, and we will see a larger surge in 2025.

However, I believe the vast majority of outstanding performance will occur in the AI memecoin category. The total market capitalization of AI memecoins is comparable to that of ETHEREUM CLASSIC. AI memecoins will gradually siphon off capital from AI Tech coins, static meme coins, and VC coins.

"DeFi SUMMER" Moment

Some compare the rise of GOAT from $0 to $1 billion to the "YFI moment" of this new industry. One of the catalysts for the DeFi SUMMER in 2020 was the emergence of YFI, which had a "Fair Launch" in July and reached a market capitalization of $1 billion within two months. This activated a large amount of on-chain capital into DeFi tokens, as it validated that fairly launched DeFi tokens could start from $0 and reach $1 billion.

DeFi was a hot area in the last cycle because it was new, exciting, and allowed people to dream. With interest rates at 0%, there were rumors that DeFi would siphon off capital from TradFi and become the future of finance. This led to a speculative frenzy on-chain, helping DeFi applications gain TVL and users to test the ecosystem. When YFI launched, the total market capitalization of DeFi was about $5 billion. It peaked at around $170 billion at the market top, growing 34 times. If GOAT is similar to YFI, then we are still in a very early stage, as the total market capitalization of AI memecoins is less than $5 billion.

The DeFi cycle combined internal catalysts/factors within cryptocurrency (liquidity mining, Ponzi yield farming, speculation) and external catalysts/factors (interest rates dropping to zero → capital entering cryptocurrency seeking yield), thus forming a bubble. The AI Memecoin Omegacycle is no exception.

Reflexivity in the New Paradigm

The theory of reflexivity posits that investors' decisions are not based on reality but on their perceptions of reality. The actions triggered by these perceptions can impact reality or fundamentals, which in turn affects investors' perceptions and subsequently prices.

The price is the total market capitalization in the AI memecoin space, while the fundamentals are based on attention and how big the "dream" is. In my view, these are not "pure memecoins." They are closer to the "tokenized AGI" launched on pumpfun. If VCs want to sell off in large quantities, these tokens will be issued with a $1 billion FDV, fluctuating by 10%. But these AI memecoins start at $0, giving anyone the chance to get in early.

In my view, the role of reflexivity is as follows:

The "AI Memecoin" category attracts speculators. Most people overlook it because "it's just another PvP memecoin narrative."

AI agents continuously improve their functionalities over time (such as Zerebro launching a record label, Truth Terminal in Infinite Backrooms v2, etc.), shifting investors' views from "memecoin" to "a whole new domain."

This activates more capital/attention both within and outside the cryptocurrency space, attracting more attention and speculative activity. Failed AI startups will issue tokens as a last-ditch effort. Wealthy tech billionaires begin to invest in some tokens.

Unlike "static memecoins," these AI agents will start executing activities on-chain, launching NFT/DeFi projects, and making impacts in the real world. They are not static. They will evolve over time, attracting more attention.

All of these factors set an infinite ceiling for potential valuations. This gives rise to bubbles, ultimately leading to cycles of boom and bust.

It is crucial to note that all these tokens started from pumpfun. This aligns with the current zeitgeist, the Memecoin/AI supercycle, and anti-VC sentiment. Elon Musk predicts that AGI will be achieved in 2025-26, so if you believe in a four-year cycle, the peak of the hype may coincide with the peak of cryptocurrency in the fourth quarter of 2025.

My Positioning

In the last cycle, the total market capitalization of DeFi reached $170 billion. If the industry reaches these valuations, it means approximately a 40-fold growth from now. However, as the total market capitalization of cryptocurrency is higher, we can easily surpass these levels. The key is to build confidence, remain patient, and adjust the portfolio accordingly, as rotations and volatility will be intense.