Bitwise CIO: Meme craze fades, why the market still holds promise?
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Bitwise CIO: Meme craze fades, why the market still holds promise?
All short-term news is bearish, while all long-term news is bullish.
Navigating Web3 tides with focused insightsAuthor: Matt Hougan, Chief Investment Officer at Bitwise
Translation: Luffy, Foresight News
Last July, I wrote an investment memo titled Short-Term Pain, Long-Term Gain. At that time, the crypto market was in poor shape. Bitcoin had risen above $73,000 in March 2024 but fell to around $55,000 by July—a 24% pullback. Ethereum declined 27% over the same period.
I wrote then that the crypto market was facing a peculiar situation: all short-term news was negative, while all long-term news was positive.
On the positive side, I saw long-term catalysts such as ETF inflows, the Bitcoin halving, and shifting attitudes in Washington. On the negative side, I identified short-term challenges like Mt. Gox repayments and government Bitcoin sales.
I concluded that this clash between short-term negatives and long-term positives created an excellent potential opportunity for long-term investors.
That assessment proved prescient. Shortly after I wrote that memo, Bitcoin hit bottom and then surged toward $100,000.
The current market environment is very similar—short-term negatives are clashing with long-term positives. For investors with a sufficiently long time horizon, I believe this is again a rare opportunity.
Bad News: The End of the Memecoin Craze
First, let's examine the bad news.
As I write this memo on the morning of February 25, the crypto market is sharply declining. Bitcoin is down 8%, falling below $90,000; Ethereum is down 10%; Solana is down 12%.
The immediate trigger is the aftermath of a hack over the weekend against Bybit, a Singapore-based cryptocurrency exchange. Hackers used a classic phishing scam to steal $1.5 billion worth of Ethereum from the exchange. Although Bybit was able to cover all customer losses using its own funds, the attack severely damaged market confidence and triggered a cascade of forced liquidations.
However, the Bybit hack is not an isolated incident. Over the past few weeks, there has been a series of memecoin-related scams, including:
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The Libra incident: Argentina’s president and crypto enthusiast Javier Milei promoted a memecoin called Libra, which turned out to be a multi-billion dollar fraud.
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Melania-related token incident: A memecoin linked to First Lady Melania Trump also ran into trouble, costing investors billions of dollars.
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Trump-related token incident: To some extent, a similar situation occurred with the memecoin associated with President Trump.
Reports suggest the Bybit hackers are linked to the North Korean government and attempted to launder the stolen Ethereum through memecoin platforms. The Bybit incident also has memecoin elements and may face regulatory scrutiny as a result.
Collectively, these events likely mark the end of the recent memecoin craze.
While this might comfort "serious" crypto investors, memecoins have been the hottest segment in crypto beyond Bitcoin over the past year. Removing memecoin activity from the ecosystem will have consequences—and that’s exactly what you’re seeing today.
Good News: Favorable Regulation, Institutional Adoption, Stablecoin Boom, and More
The impact of short-term news will eventually fade. With few exceptions, memecoins will no longer matter—that’s just how it is.
Luckily, the long-term outlook for crypto does not depend on memecoins.
Instead, I believe several long-term trends will persist for years, including:
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Favorable crypto regulation: Washington’s attitude toward crypto is undergoing a major shift, and we are only at the early stages of this transformation. In just the past few weeks, we’ve seen the U.S. Securities and Exchange Commission (SEC) drop high-profile lawsuits against companies like Coinbase, and lawmakers have reached consensus on pro-crypto legislation related to stablecoins and market structure. These developments will enable crypto to enter the mainstream and reshape the financial landscape in the years ahead.
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Institutional adoption: Institutions, governments, and corporations are buying Bitcoin in large quantities. So far this year, investors have poured $4.3 billion into Bitcoin ETFs. We expect that number to reach $50 billion by year-end, with hundreds of billions more flowing in over the coming years.
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Stablecoins: Stablecoin assets under management have reached a record high of $220 billion, growing nearly 50% over the past year. But we believe this is just the beginning. As stablecoin legislation advances in Congress, the stablecoin market could surge to $1 trillion by 2027.
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The revival of decentralized finance and the rise of tokenization: DeFi applications are regaining attention, with increasing activity in lending, trading, prediction markets, and derivatives. At the same time, assets under management in real-world asset tokenization are hitting new highs every day.
Where Is the Market Headed?
I find this analytical framework helpful because, in a way, it makes investment decisions simple and clear. On one hand, we face the decline of memecoins and the Bybit hack; on the other, we see favorable regulation, massive institutional adoption, a trillion-dollar stablecoin boom, the revival of DeFi, and the rise of tokenization.
This is what I call a no-brainer decision.
That said, I should caution that this market correction is more severe than the one I mentioned in July 2024. That earlier pullback was brief and driven by one-off asset sales—sales that were clearly finite from the start.
The memecoin craze was massive, and its fallout could be proportionally larger. It may take days, weeks, or even months to fully digest these effects.
But our overall thesis remains the same: short-term news is negative, long-term news is positive. When that happens, I favor long-term investment opportunities.
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