Key Points
- 2023 has started strongly for crypto markets, with meme coins delivering significant gains
- A softer macroeconomic backdrop has supported the rally
- Shiba Inu has risen about 50%, fueled in part by hype around a Layer-2 ecosystem launch
- Our analyst warns investors that not everything is as it appears
It feels a bit strange to write this, but here we are. 2023 has gotten off to a flying start for crypto markets, with growing optimism that softer inflation readings will lead to monetary easing sooner than the market previously expected.
One of the asset classes benefiting most from this mood is meme coins. Dog-themed tokens are producing returns that recall the first quarter of 2021 — a period when Reddit users challenged Wall Street over GameStop, Elon Musk tweeted constantly about fluffy dogs, and liquidity was abundant.
The reigning pair in that space — Dogecoin and Shiba Inu — are up about 22% and 49% respectively so far this year.
[50175397-b836-4cc0-b2f-2443dd42abdf]
Bonk: the latest meme to celebrate
The curious case of Bonk perhaps best captures this odd resurgence. The meme token, inspired by Shiba Inu, was launched on Christmas Day on Solana — yes, the same Solana that recently faced serious difficulties, including ties to Sam Bankman-Fried, repeated outages that halted the network, and projects migrating to rival blockchains.
From an objective standpoint, launching on Solana — and doing so in the depths of a bear market — was a strange choice. But logic and the crypto-meme market don’t always align. Bonk surged roughly 2500% within ten days and briefly exceeded a $200 million market capitalization. It has since eased but still trades around a $50 million market cap.
Why are memes outperforming?
So why are meme tokens performing so well? The simplest answer is that the broader crypto market has been rallying. Even major cryptocurrencies have posted strong returns, which makes meme gains look less extreme in context.
Part of the rise is linked to inflation readings that came in lower than expected. While inflation remains far above the Federal Reserve’s 2% target, there are clear signs that the peak may be behind us. Investors have interpreted this as a signal that the era of persistently high rates — which is generally negative for risky assets — could recede sooner than anticipated.
Shiba Inu, however, is benefitting from more than macro tailwinds. It jumped roughly 20% after news of a listing on Upbit, South Korea’s largest exchange, and momentum has been building around the upcoming Shibarium Beta release.
Shibarium Beta is a Layer-2 network being developed on Ethereum, similar in concept to Polygon and Arbitrum.
Is this sustainable?
Personally, I’m wary of putting too much faith in this still-mysterious Layer-2 project connected to Shiba. Meme tokens are just that — memes — and historically they have not been a fundamentally driven investment. It would take far more than vague hype about Shibarium to convince me Shiba will ever be used for much beyond speculative trading driven by the hope of selling at a higher price.
That’s the central issue with memes: there is rarely a clear argument for intrinsic value. They have often been a middle finger to cautious investing, a mischievous younger sibling to the discipline of long-term portfolio management.
All of this can be entertaining and profitable in an environment of abundant cheap capital. When interest rates are near zero and stimulus funds flow freely, speculative bets can balloon quickly. That dynamic was amplified during the pandemic, when many people were stuck at home and had extra stimulus checks to deploy.
But that world no longer exists. I’ve said it before and I’ll say it again — the era of treating memes as a path to retirement gains is over. Meme coins were always a reckless gamble, and that’s acceptable for some traders. Yet they are no longer a limitless source of fun money; they remain highly speculative while the broader economy faces the most challenging conditions since Bitcoin launched in 2009.
Markets may be more optimistic than they were a month or two ago, but inflation remains troublesome despite modest declines. Interest rates are still high, and numerous variables could quickly turn this fragile recovery into something worse.
It’s worth repeating: be cautious with dog-themed tokens. If the music stops — and at some point it always does — the fallout can be severe.