Meme coins are having a moment again, and there's reason to believe that they're not going to stop anytime soon. But the factors driving the market are entirely different from the meme coin mania of 2021, and any bull market in cryptocurrency that develops will have a different character as a result.
If you're interested in investing in this space, it behooves you to understand the macro environment. So let's investigate three trends that are defining it.
CRYPTO: BTC
Key Data Points
1. Investors are craving risk right now
It is often rightfully said that cryptocurrency investments are risky, or even speculative. Meme coins are even riskier and closer to speculation or outright gambling than the somewhat less volatile cryptocurrencies like Bitcoin (BTC 1.84%) or Solana (SOL 2.39%). And right now, there's a preponderance of evidence to suggest that investors are craving opportunities to take financial risks at the extreme end of the risk spectrum, such as by buying a meme coin like Dogecoin, Floki, Dogwifhat, or Shiba Inu.
Sports betting via smartphone apps is exploding, with TV and internet commercials drawing in more and more people. The American Gaming Association predicted that for this year's March Madness event alone, people in the U.S. would bet more than $3 billion. Other sources suggest that commercial sports betting revenue has risen by more than 12 times between 2019 and 2024, reaching a sum of more than $10 billion annually as of 2023. The main financial properties of such bets are that they're tremendously risky, and that they can in theory deliver outsized returns.
Betting on short-term outcomes in sports games is by definition gambling, not investing. Nonetheless, investors also recently piled into risky technology stocks with already-bloated valuations, like Tesla. And investors are also now piling into short-dated options contracts, which are incredibly risky, yet offer the chance for a large reward relative to the initial investment.
Cryptocurrency investments offer another route for those seeking exposure to big risk in exchange for the possibility of big returns. As long as investors continue to crave risk, some of their capital will flow to meme coins, which offer similar risk and return characteristics.
But what's driving this behavior, and will those drivers persist? Let's now look at two other trends that support this larger trend and ensure it won't flame out anytime soon.
CRYPTO: SOL
Key Data Points
2. Consumers have hefty and uncomfortable debts to repay
It isn't a good financial decision to take on large amounts of debt. Nor is it a good decision to take large financial risks in an attempt to generate enough capital to pay down such debts.
Alas, on average, consumers have already fallen into the first trap, and now many people are falling into the second by throwing their money at meme coins. Per the Federal Reserve of New York, household debt in Q4 of 2023 totaled $17.5 trillion, up from just under $12 trillion 10 years prior to that. One major contributor to that sum are student loans, which accounted for $1.6 trillion in Q4 of last year, and which debtors are now obligated to repay once again now that the federally mandated pause has ended.
Many households are now effectively experiencing the burden of their student loans for the first time in several years. The painful pinch of that monthly payment is coinciding with the painful pinch of inflation in consumer goods, healthcare, services, transportation, and shelter.
What hope is there of repaying large debts held at relatively high interest rates when a person's other expenses are rising sharply at the same time? With hopelessness comes desperation, so the masses turn to risky investments.
Of course, it is probably counterproductive to dive into meme coins without a plan or the appropriate framework for successful and long-term investing.
But for the moment, a change for the better that would give people an easier time managing their finances and paying down their debts is not at all guaranteed. So expect more investing in meme coins.
CRYPTO: DOGE
Key Data Points
3. Real estate is unaffordable for many
Beyond being debt-free, one thing that many people desire is to own their dwelling rather than rent it. Due to a combination of low housing supply, high interest rates, inflated prices, and a handful of other factors, people making the median income in the U.S. cannot afford to purchase a median-priced home in the vast majority of areas. It is thus a growing consensus that housing is more unaffordable now than ever before.
Put differently, a very large segment of investors does not have enough capital nor enough income to buy a dwelling even when using levered debt in the form of a mortgage. Nor do they have enough capital to buy a dwelling in cash. And that means the least-riskiest and least-volatile asset that would otherwise make up the majority of most investors' net worth is out of reach.
There's very little reason to hold out hope for conditions in the housing market to improve within the next five years. The wage gains that most workers experience on average will do next to nothing to improve their odds of securing a home, as the price of real estate will almost certainly continue to rise at a slightly faster pace, as has been the norm for more than a decade. Look at this chart:
Wage Growth Tracker data by YCharts
Other places that are suitable for parking large sums of capital, like stocks, might seem like an obvious alternative. But stocks typically don't offer the possibility of returning life-changing money overnight -- nor should they. Still, that's sufficient to send investors further along the risk spectrum, toward meme coins and outright gambling.
Don't make this mistake yourself. With sound financial planning and sustained effort in allocating your capital effectively, it may eventually be possible to accomplish some of your home buying goals. Instead, think about how to position your investments for the reality that many other people are going to be looking for opportunities to take risks. Buying a coin on a chain that's a hotbed for meme coin trading, like Solana, is probably a good place to start.
