Why will Memecoins lead the recovery of the crypto market?

Traders' desire for high-yield investment opportunities has not disappeared; they will shift from perpetual contracts to Memecoin.

Written by: Baba

Translated by: Luffy, Foresight News

Last Friday's leveraged liquidations caused heavy losses for many people, and I hate to see anyone suffer such a fate. But just like a forest reborn after a great fire, new opportunities will emerge in the cryptocurrency market.

As leverage disappears and basis trading collapses, capital and attention are structurally forced to migrate: from perpetual contracts to spot, from centralized exchanges (CEX) to decentralized exchanges (DEX), and from mainstream coins to small-cap coins. This shift marks the beginning of a new on-chain cycle, where reflexivity will replace leverage as the market's dominant mechanism.

Although last Friday's crash made many people wary of leverage, traders' desire for high-yield investment opportunities has not disappeared, and may even become stronger as they seek revenge trades to recover losses. Liquidity does not disappear into thin air; it simply flows to the best opportunities.

This market environment happens to inject new vitality into the Memecoin supercycle.

Overall, as participants return to the most primitive trading methods, the activity of on-chain spot coins will increase, and Memecoin in particular has the potential to attract attention. The profit potential of Memecoin is similar to that of leveraged positions; with only a small capital investment, one can achieve high returns in a short period of time. Moreover, Memecoin does not carry the risk of liquidation.

Trader's Perspective

First, let's break down the fundamental logic of why people choose to trade perpetual contracts instead of spot.

The core reason market participants prefer perpetual contracts is that they solve the problems of capital efficiency, trading thresholds, and flexibility—especially in the crypto market, where liquidity is fragmented and volatility is persistent. For traders, the core goal is to maximize expected returns per unit of risk and per unit of capital.

The spot market uses a fully collateralized model; if you want a 1:1 position exposure, you must invest the full amount. Perpetual contracts break this limitation. Traders do not need to pay the full principal; they only need to deposit margin to obtain higher exposure. This leverage mechanism can amplify gains but also increases losses. In crypto trading, capital is the most precious resource, so efficient capital allocation is naturally very attractive to traders.

Cryptocurrency is one of the most volatile asset classes, giving traders the opportunity to achieve excess returns in the short term. But the other side of high returns is high risk: when prices rise, the candlestick often shoots up vertically; when they fall, it seems bottomless. This characteristic attracts traders with high risk appetite. In theory, their upside is unlimited, while their downside is limited to the margin.

Essentially, perpetual contracts inject the strongest catalyst into already highly volatile assets: they give traders the chance to pursue the legendary 1000x returns on coins considered safer than on-chain Memecoin.

But returns and risks always go hand in hand. Negative funding rates can lead to account losses, margin calls can trigger early liquidation, and reliance on the exchange's solvency introduces systemic risk. Even so, traders are still willing to take these risks because the return structure of perpetual contracts is more attractive. Traditional markets rely on stability, while the crypto market thrives in instability.

Volatility, narrative shifts, and new underlying protocols have long been the norm in crypto trading. In such a market, information decays quickly, and new opportunities constantly emerge amid chaos. At this time, taking risks is not irrational but a strategy: if the market resets every so often, entering early and being aggressive often yields more rewards than acting late and seeking stability. The crypto market rewards those who act quickly, not those who wait for confirmation.

Market Incentives

Currently, market sentiment for perpetual contracts is at a recent low, creating opportunities for new mainstream plays. Sharp teams have already realized this and are racking their brains to attract attention to their products—from airdrop plans to product launches, a large number of projects are likely to release major updates in the coming weeks. As many past cases have shown, timing is often the key to a project's success or failure.

Take WIF as an example; its launch timing was perfect. At that time, Solana was in an upward channel, the Solana community had just received a liquidity injection from the JTO airdrop, and the Memecoin supercycle was just beginning. If WIF had launched in January 2024, there would already have been Memecoin leaders in the Solana ecosystem, and WIF would have become just one of the thousands of Memecoin launched daily.

If I were Alon from pump.fun, the Bonk.fun team, or a member of the Solana Foundation, I would do everything possible to redirect attention back to the Solana battlefield—the simplest way is to revive the Memecoin market. Memecoin was once the core driving force attracting users to the Solana ecosystem, and now they have the chance to play this role again. Generally, price increases are the most effective marketing method, and the capital threshold to push up Memecoin is the lowest.

Once reflexivity and speculative sentiment are triggered, the prophecy of high market cap Memecoin will become self-fulfilling. People will enter due to FOMO: a certain Memecoin performs well → traders FOMO in → price targets are raised → bullish voices for Memecoin get louder → more Memecoin follow the trend and rise → more Memecoin are launched. This is a flywheel where speculation and validation reinforce each other.

If we see Memecoin bulls becoming more active on social platforms, it means that hype is returning to the Memecoin sector. For pump.fun and Bonk.fun, increased activity brings more fee income, which in turn drives buybacks of the PUMP and BONK tokens. Currently, the price trends of USELESS and NEET are already showing positive signs, which may be an early signal of this trend.

Thinking from the perspective of traders whose accounts were wiped out by liquidations last Friday: they usually have two options:

1. Temporarily exit the crypto market and reassess their trading strategy;
2. Continue to take on higher risk and engage in revenge trading.

I do not recommend emotional trading, but our goal is to predict the behavior of market participants, not to tell them what they should do. These traders already have a high risk appetite, so they will naturally be attracted to opportunities most likely to recover all their losses. Once there is an upward trend in the Memecoin sector, they are very likely to invest their funds there.

Attention and Capital Flows

Essentially, Memecoin is the purest form of currency in the attention economy. Why do they have no fundamental value, yet reach market caps of several billions of dollars? The answer is attention.

Attention is the core driving force behind capital flows in the crypto market. This also explains why quality products may not drive price increases, while products with poor user experience like Cardano can perform well in price. In crypto, it takes years for project teams to create value for a protocol, but the crypto community's attention span is as short as a goldfish: their expectations for a project often focus only on the next few weeks or even days, meaning that price trends can hardly accurately reflect changes in protocol fundamentals. Instead, price movements are more often driven by hype or opinions in groups.

In the attention economy, Memecoin is the perfect attention absorber. They are inherently reflexive tools: small circulating supply, high turnover, and prices determined by attention. Injecting 1 million dollars into a 10 million dollar market cap Memecoin causes ten times the price volatility compared to injecting the same amount into a centralized exchange altcoin. This convex return structure will attract remaining funds after liquidation back into the Memecoin casino.

The resulting attention vacuum will attract bystanders to enter; no one can resist the vertically surging green candlestick, which further fuels the Memecoin cycle.

In the risk economy of cryptocurrency, leverage and reflexivity are substitutes. When there is sufficient leverage in perpetual contracts, reflexivity in the spot market is suppressed; when leverage collapses, reflexivity in the spot market becomes dominant.

Before the crash, thanks to the success of Hyperliquid and the rise of competitors like Lighter and Aster, the attention and liquidity of perpetual contracts reached historical highs; meanwhile, market sentiment and attention for Memecoin fell to cycle lows. The candlesticks were dismal, players shifted to other sectors, social platforms were full of ridicule for Memecoin, and sellers had no coins left to sell. This situation precisely means that the sector is ready for a bottom and rebound.

Personally, I have wavered on whether Memecoin is overall beneficial or detrimental to cryptocurrency, but my opinion doesn't matter. Ultimately, the market and price will decide whether Memecoin can replace perpetual contracts as the focus. This is a classic example of the Keynesian beauty contest in modern markets: in Keynes' original metaphor, investors do not choose the face they think is most beautiful, but the one they think others will find most beautiful.

From the current market environment, Memecoin seems most likely to be the winner of the beauty contest. They meet all the conditions to attract perpetual contract traders—high returns, high volatility, and low short-term capital requirements. Given that many people are wary of liquidation and crash risks, attention is ready to shift to new mainstream plays, and capital will naturally follow.

Current State of the Solana Ecosystem

The Memecoin boom in 2023 started with Solana, and now it is likely to become the center of the boom again. Although Memecoin sentiment and on-chain activity are currently at low points, just a bit of upward momentum can quickly reverse the situation. As shown in the chart below, pump.fun’s trading volume and fees have been declining since mid-September—even though bitcoin has rebounded from its September lows and hit new highs in October, on-chain activity has not recovered accordingly.

In the past 7 days, BNB Chain has seen the largest capital outflow, with 11% of the funds flowing cross-chain into Solana. This signal indicates that funds profiting from the Binance boom are returning to the Solana on-chain ecosystem. If this trend continues, it is reasonable to speculate that a considerable portion of these funds will flow into Memecoin.

Trading Strategies

Assuming that after liquidations, attention and capital will return to Memecoin, the trading strategy is actually quite simple: if you believe in the Memecoin revival thesis, getting in early is the highest expected value choice.

Although the leaders of the last Memecoin cycle may rebound as activity increases, the greatest profit potential is often in newly launched Memecoin. New coins mean brand new memes, brand new code, and brand new possibilities—these traits bring much higher interactive heat than old coins whose stories have already been priced in.

Old coins often carry historical baggage: previous highs, trapped holders, broken narratives; new coins have none of these constraints, no psychological price ceiling, and no community legacy issues, making it easier for traders to believe "this time is different." The first few green candles of a new coin create the illusion of discovering a new opportunity, which is enough to trigger a reflexive feedback loop.

As shown in previous Memecoin cycles, trendsetters always profit, because leading coins are usually born at the beginning of the boom. Take WIF and FARTCOIN as examples; both were launched at the start of the uptrend, giving them enough time to accumulate users. No matter how strong a Memecoin's momentum is, it cannot rise vertically forever: it needs to undergo significant corrections to shake out early holders and provide attractive entry points for onlookers. This creates a more determined holder base, achieves wider token distribution, and attracts more attention.

Before the new Memecoin leader emerges, no one can accurately predict its form. Therefore, now is the time to closely monitor social platforms and market tools to discover Memecoin with the potential to become the next on-chain leader. When researching Memecoin, consider the following questions:

• How large is the target addressable market (TAM)? Can it only resonate within the crypto community, or does it have the potential to enter the mainstream (like FARTCOIN)?
• Which parties are motivated to push this token to success? Are there large institutions willing to stake their reputation on it?
• What is the consensus point? What is the core narrative driving the price up?
• How strong is the meme's virality? Does it have self-propagating properties?

This list is not exhaustive, and leading coins may not meet any of these criteria. The main purpose of listing these questions is to get you thinking about the key factors that drive attention to Memecoin.

Conclusion

I cannot guarantee that the Memecoin revival thesis will definitely come true, and this article is not telling you to blindly buy every new coin on the market. But this is a trend worth watching, and there will be clear signals when attention returns to Memecoin: rising DEX trading volumes, more new trading pairs, higher market caps for newly launched tokens, and more K-line sharing on social platforms. Please believe in the value of certain things.