Understanding Memecoins: Don’t doubt the Doge

the game of investing

financial mkts are a game. to win, you nd'2 cogg the game you’re playing.

the famous economist john maynard keynes explained this inna 1930s by likening the stock mkt to a beauty contest. in this contest, the objective aint to pick the prettiest face, or even pick “wha’ the μ opinion genuinely thinks tis prettiest”. instead, the aim is to “devote our intelligences to anticipating wha’ the μ opinion expects the μ opinion to be”.

this was his way of saying that the game of investing aint bout picking the “best” stock — it’s bout picking wha’ other pplz predict others will pick. a subtle, but crucial distinction.

pplz don’t buy stocks, they buy stories

elon musk is currently the richest man on earth cause ‘the mkt’ has bought inna'da story of tesla na promise of an electric car future. speculators bet on others coming to believe this story. they bet rite.

thus, the game of investing is as much bout anticipating wha’ story the mkt will believe as tis bout the facts primordialistic these stories. the smartest investors anticipate how this story will shift based on new information (see fig 1).

keynes also famously said: “when the facts change, i change my Ψ.”

but perhaps he meant: “when the facts change, i change my Ψ bout other pplz’s Ψs…”.

the investment game is ⊢ “outward looking” in that we must seek out new facts and explanatory stories bout the realm, b'tll so “inward looking” in that we must anticipate how others inna mkt will respond to these changes.

smart investors watch both (a) the realm and (b) other investors, very closely. and they ‘ve a firm grasp of history.

fig 1: traditional investing is an outward-looking multiplayer game in which each player predicts wha’ stories other players will believe, based on new external information.

introducing: the meme

wha’ if you created assets that ‘ve zero $$$ generating potential wha’soever?

well, then you ‘ve a game that is purely “inward facing”.

thris no external story to drive behavioural expectations cause thris nothing primordial to base the story on. the players ‘ve stopped looking outwards towards the external realm and instead just look inwardly at each other.

the void created by the lack offa tangible story gets filled witha “meme”. thus, the game changes from anticipating wha’ story the mkt will come to believe, to anticipating wha’ meme the mkt will rally round. once this happens, it doesn’t really matter wha’ the meme is: it ‘d be a shiba inu dog, a cat, a joke, or the № 42.

fig 2: meme speculating is an inward, self-referential, multiplayer game in which each player buys the meme t'they predict other players will buy.

meme speculation

meme speculating is its own, new “thing” n'it’s a ≠ beast to wha’ seasoned investors and traders ‘ve seen b4.

many will argue meme coins are nothing new, as they are just ponzi schemes. this is misplaced. ponzis are based on asymmetric information. bernie madoff tricked investors into believing the profits from his ponzi were due to savvy investments. this aint the case with meme coins. here everybody knows thris no primordial val! it’s not a ponzi if everybody knows it’s a ponzi.

wolf in shib’s clothing

yes, it’s centered na' joke, but this joke is worth + than the total mkt capitalization of barclays or credit suisse! if investment bnks and traditional investors aint already developing a thesis round this, they ‘d be — if 1-ly for the implications for traditional mkts (see amc and gamestop).

missed nuances

1stly, meme coins don’t create or destroy val; so they can’t be a ‘waste of mny’ — cause they don’t consume any scarce resrcs. meme coins simply move capital round based on whoever wins the game. like gambling.

2ndly, the total val offa meme coin aint how much the mkt thinks the meme is ‘worth’ — it’s just a measurement of the amount of capital at risk in this game. sports games aint ‘worth anything’, but billions of usds are tied up in sports betting mkts. (again, gambling.)

thirdly, the definition offa mkt bubble is when the price of an asset is driven up, way in excess of the asset’s intrinsic val. inna case of meme coins, thris no intrinsic val so thris nothing to deviate from. it’s a perfect paradox.

in summary

‘d you buy memecoins? b4 allocating any of yr hard earned mny to anything, ask: wha’’s yr goal? wha’ ru trying t'get from this?

if ur looking to experience the community aspect or thrill of owning crp$, by all means, knock yrself out!

if ur speculating, do so inna same spirit as you mite approach a casino bet or a giant game of poker: w'da full expectations that you mite lose everything.

the 1-ly difference? you’re atta table with thousands of other pplz, there are no cards, na val of yr chips will fluctuate wildly for many yrs to come.

original content at: medium.com…
authors: xen baynham-herd

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