On Wednesday (April 24), Bloomberg reported that the hedge fund community seems to find the lure of memecoins irresistible.
When Dogwifhat (WIF) became the hottest token in crypto in December, Newport Beach, California-based Stratos launched a liquid fund that held the token, with a beanie-wearing dog as its mascot. The token’s price surged more than 3,000 times, helping the fund post a 137% return in the first quarter, more than double the gains of the cryptocurrency market as a whole. Dogwifhat is down more than 40% from its all-time high set last month.
Stratos, which says its limited partners include venture capitalists Marc Andreessen and Chris Dixon, isn’t the only hedge fund to dabble in memecoins. Macro heavyweight Brevan Howard has made a “small” investment in the sector, according to a person familiar with the matter who was not authorized to speak publicly. Crypto fund Pantera Capital recently wrote that “memecoins are here to stay” and that “memecoin trading creates a huge” opportunity. In fact, memecoins have recently seen the highest volume on so-called decentralized exchanges, according to Dex Screener. The overall market value of memes has grown to around $54.7 billion, according to data tracking company CoinMarketCap.
“It’s a truism that if the fund doesn’t do it, the fund staff will,” Rennick Palley, founding partner at Stratos, said in an interview.
(Source: Bloomberg)
Hedge funds have long been active in the crypto space, attracted by strategies such as arbitrage trading involving the Grayscale Bitcoin Trust that allowed them to profit from price differences between Bitcoin and the trust’s shares until the recent “bitcoin price winter.”
Even so, many crypto players remain skeptical of memecoins. Unlike more traditional cryptocurrencies, memes are not usually tied to specific projects. Most were initially inspired by internet memes, characters or trends and are intended to be lighthearted and entertaining. The vibe has evolved into a speculative trading strategy dominated by a few groups that seek quick profits after heavily promoting tokens through social media.
“This is just retail mania, like you saw with GameStop and meme stocks in traditional markets,” said Quinn Thompson, founder of hedge fund Lekker Capital, who has tried trading meme coins in his own account. “This is the tip of the speculative spear. This is gambling.”
The first meme coin was launched in 2014, and tens of thousands have been created since then, with Dogecoin, the one with a picture of a Shiba Inu, currently the eighth-largest cryptocurrency with a market value of about $22 billion, according to CoinMarketCap. While many retail investors have lost money on meme coins and some have made fortunes, professional investors have mostly stayed away until the recent cryptocurrency boom.
“Memecoins started out as a joke, obviously,” said Cosmo Jiang, a portfolio manager at Pantera. “But over time, they evolved into much more than that. People started referring to some memecoins as cultural coins, which are members of a culture or a group of people who share a common belief system.”
(Photo source: X)
Memes have also become easier to create and launch, with apps like Pump.fun allowing users to mint coins in minutes. Blockchains like Solana and Base that offer low transaction fees have been inundated with tokens. Telegram bots, such as Bonkbot, have made meme trading easier. Perhaps most importantly, some memes are now listed on mainstream exchanges, such as the Winklevoss twins’ Gemini.
“Since the last cycle, the infrastructure around memecoins has become more robust, and liquidity for multiple tokens has improved significantly,” said Josh de Vos, head of research at CCData. “Centralized exchanges have developed sophisticated futures markets for the leading memecoins, allowing hedge funds to capitalize on their volatile moves and effectively hedge their exposure.”
That has made hedge funds more willing to follow the lead of retail investors and promoters, who have long viewed the microscopic prices of most memecoins as an opportunity to make big returns quickly despite a lack of traditional fundamentals.
Josh de Vos said Dogwifhat was almost a rounding error in terms of its initial cost base. That’s how we usually think of memes.
As more hedge funds begin to take memecoins more seriously, it is expected that attention on the highly speculative tokens will only increase.
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