Beyond Bitcoin: Leveraging Memecoins for Portfolio Diversification and Enhanced Returns

Key Highlights:

• A market-cap-weighted basket of the top 25 memecoins has outperformed Bitcoin by 150% over the last six months. Dogecoin has increased by 164% since Trump’s election and is now the seventh-largest cryptocurrency by market cap at $60 billion.

• Allocating 4% to Bitcoin and 1% to memecoins in a traditional 60/40 global stock and bond portfolio between January 2023 and November 2024 with quarterly rebalancing would have increased the portfolio’s cumulative return to 35.2%, representing almost a 50% increase in the total return achieved by the traditional portfolio with no digital asset exposure (23.9%).

• Memecoins have an unprecedentedly low correlation with traditional asset classes, enabling investors to increase their portfolio risk-return ratio. Rolling 30-day correlations over the past two years are 0.36 for equities, -0.19 for bonds, and -0.22 for gold.

• The total market capitalization of memecoins is only $150 billion, or approximately 4% of the cryptocurrency market, indicating that this subsector has the potential to grow

• CAGR projects the memecoin market to surpass $218 billion in 2025.

While Bitcoin remains the cornerstone of the crypto ecosystem, the rise of alternative tokens, particularly memecoins, has garnered significant attention. Initially dismissed as novelties or speculative bets, memecoins such as Dogecoin, Shiba Inu, and others have evolved into a dynamic market subsector. Their unique ability to blend internet culture, community-driven momentum, and financial speculation has opened up new possibilities for portfolio diversification and potential returns. The memecoin market capitalization has reached $150B, equating to approximately 4% of the cryptocurrency market. Approximately 50,000 memecoins are created daily; however, the top 11 memecoins account for approximately 75% of the market capitalization of the memecoin market.(1) The Block’s GMCI Meme Index, comprised of 25 memecoins, broke away from Bitcoin in early November and has outperformed Bitcoin by 150% over the last six months.

(1) Charts for this report can be found at (linkdune.com/crypto_research_report/memecoin-analytics: text: dune.com/crypto_research_report/memecoin-analytics target: blank)

Figure 2 shows the historical returns of a traditional stock and bond (60/40) portfolio versus an allocation to Bitcoin and “blue-chip” memecoins. Allocating 4% to Bitcoin and 1% to memecoins in a traditional 60/40 global stock and bond portfolio between January 2023 and November 2024 with quarterly rebalancing would have increased the portfolio’s cumulative return to 35.2%, representing almost a 50% increase in the total return achieved by the traditional portfolio (23.9%).

Bitcoin and memecoins have an unprecedentedly low correlation with traditional asset classes, enabling investors to increase their portfolio risk-return ratio. As shown in Figure 3, The Block’s GMCI Meme Index correlates 0.36 with equities, measured by the VT-Vanguard Total World Stock ETF. Similar to cumulative returns, incorporating memecoins improved the overall Sharpe ratio of the traditional portfolio. Between Jan. 1, 2023, and Dec. 9, 2024, adding 4% Bitcoin and 1% memecoin index to a traditional 60-40 portfolio with quarterly rebalancing improved the Sharpe ratio by 35%.

Source: CryptoResearch.Report

However, memecoins are highly correlated with Bitcoin. In 2024, Bitcoin saw 8 weeks of double-digit price changes, and although memecoins have outperformed Bitcoin during these price surges, the sector has also suffered more significant drops during downturns.

Memecoins are Social Capital
Memecoins possess an inherent advantage in their widespread brand recognition. Consider this: how many investors can name the largest tech companies in Spain or Japan? Likely very few. Yet, millions worldwide recognize Dogecoin—thanks to its iconic depiction of a Shiba Inu dog. This level of cultural penetration underscores a unique attribute of memecoins: their ability to captivate and engage audiences in ways traditional financial assets cannot.

Traditional asset pricing theories assume investors are rational and leverage all available information when choosing risky assets. However, extensive research, such as Kahneman's seminal work on attention (1973), highlights the limitations of human attention and cognitive capacity in decision-making. Memecoins capitalize on these limitations by appealing to emotions, humor, and shared cultural narratives rather than solely relying on utility or fundamentals.

It’s important to highlight a unique distinction: there is no equivalent in the Web2 economy to memecoins like Popcat, which thrive purely on community-driven narratives. For instance, the Web2 landscape features centralized data storage solutions like Google Drive, Dropbox, and iCloud, whereas Web3 introduces decentralized alternatives such as IPFS and Sia. Similarly, Web2 social media platforms like Facebook face emerging competition from Web3 counterparts like Nostr. However, when it comes to memecoins, there is no direct equivalent in the Web2 ecosystem. Memecoins stand apart as a uniquely Web3 phenomenon, blending decentralized technology with cultural and social capital in a way that traditional Web2 frameworks cannot replicate.

This positions memecoins as a unique asset class that provides exposure to social capital—an intangible yet increasingly valuable form of currency in a digitally interconnected world. Moreover, their accessibility and simplicity allow retail investors to participate on an equal footing with institutional players, aligning with the core principles of decentralization.

Although Bitcoin now attracts institutional and Wall Street investors, it was initially a grassroots movement. In the same way that the early Bitcoin owners were retail investors, memecoins today cater to that market segment due to their affordability and accessibility. That is why even though today it may seem unlikely that in the future institutions will adopt memecoins into their allocations, this same sentiment was held toward Bitcoin 10 years ago.

Four Advantages of Memecoins
Affordability, accessibility, transparency, and regulatory compliance are why investors are increasingly interested in memecoins.

Affordability:
Millennials and Gen Z are increasingly drawn to cryptocurrencies like memecoins, viewing them as a high-risk, high-reward opportunity for wealth generation. This shift reflects the unique economic challenges these cohorts face, marking the first time in developed nations that younger generations are, on average, financially worse off than their parents. In the 1960s, a single income was sufficient to purchase a home and support a family of three or four children. Today, however, the combined effects of fiat currency debasement and the financialization of real estate have fundamentally altered this reality. Many households now require dual incomes to meet basic expenses, with homeownership often unattainable. This challenging economic landscape has spurred younger generations to seek alternative paths to financial security, leading to the rising popularity of speculative assets like memecoins.

Accessibility:
Memecoins can be traded 24/7 on centralized exchanges like Binance and Coinbase and decentralized platforms like Uniswap and PancakeSwap. This constant availability and ease of access make memecoins far more accessible to digital natives than traditional asset classes bound by market hours and intermediaries.

Transparency:
The “low float, high FDV" where a project has a small circulating supply of tokens (low float) but a large total potential market capitalization when all tokens are released (high fully diluted valuation, or FDV) leaves traders with little sustainable upside after the token generation event. Disillusionment with venture capital (VC)-backed cryptocurrency projects has further fueled interest in memecoins. During the initial coin offering (ICO) era, many utility coins promised groundbreaking innovation but often prioritized early investors, leading to accusations of “pump-and-dump” schemes. While utility coins like Cardano and XRP present themselves as solutions for global payment systems—targeting developing economies or offering alternatives to networks like SWIFT—memecoins like Dogecoin take a different approach. Unlike heavily marketed payment coins, which we call “fugazi memecoins,” Dogecoin does not claim to replace fiat currency or traditional payment systems. Yet, it has found niche use cases, such as facilitating value transfers in Venezuela and enabling traders to move funds between exchanges for arbitrage opportunities. The transparency and simplicity of “honest memecoins” have appealed to retail investors disillusioned with overpromised utility coins.

Regulatory Compliance:
Memecoins also present an interesting angle in the regulatory landscape. Developers of utility coins with real-world applications often expose themselves to scrutiny and potential penalties from regulatory bodies like the Securities and Exchange Commission. By contrast, memecoins that position themselves as humorous, low-stakes tokens, such as those representing a dog wearing a hat or a cartoon cat, signal their lack of utility and non-security status, minimizing regulatory risk. This regulatory buffer further enhances their appeal to retail investors.

Blue-Chip Memecoins
The data highlights how strategic exposure to Bitcoin and select memecoins can enhance returns while maintaining reasonable risk levels. However, how do investors differentiate between suitable memecoin investments and risky memecoins that may be a rug pull? Below, we classify and identify the types of memecoins and the defining traits of “blue-chip” memecoins. Not all memecoins are created equal. “Blue-chip” memecoins demonstrate stability, liquidity, and market acceptance. These tokens often possess the following characteristics:

1. Major Exchange Listings: Inclusion on platforms like Binance or Coinbase ensures credibility and liquidity. For example, Pepe, listed on Binance, has established itself as a prominent player in the memecoin space due to its strong community and high trading volumes.

2. Celebrity/KOL Backing: Public endorsements from influential figures drive adoption and awareness. For example, supported by Elon Musk, Dogecoin has evolved from a joke to a legitimate digital currency with real-world use cases, such as value transfer and arbitrage trading. The new government office that Elon Musk and Vivek Ramiswami are running has even been called the Department of Government Efficiency (DOGE). There is no way this was just a coincidence. Since Donald Trump's election, Dogecoin has increased by 164% and is now the seventh-largest cryptocurrency by market cap at $60 billion.

3. Significant Liquidity: Measured by weekly onchain trading activity on decentralized exchanges (DEXs), high trading volumes allow investors to open and close sizable positions.

4. Minimum Market Capitalization: Measured by the price times the number of coins in circulation, large market capitalizations distinguish blue-chip meme tokens from speculative or illiquid assets.

5. Token Age: Measured by days since deployment, the longer a memecoin token has been on the market, the lower the probability this token will succumb to a hack or be rug-pulled by the developers.

6. Holder base: Measured by the number of unique wallets holding the coins and distribution of coins (memecoin Gini coefficient), this prevents large fluctuations in price due to the developer or whales selling.

The Future of Memecoins
Historically, different cryptocurrency asset classes have dominated market cycles. Ethereum and altcoins led the surge in 2017, while decentralized finance (DeFi) and non-fungible tokens(NFTs) took center stage in 2021. Insiders like Murad Mahmudov and Ran Neuner today suggest that memecoins are poised for explosive growth this cycle. Unlike NFTs, which are unique, non-fungible assets, memecoins offer fungible tokens tied to a single cultural narrative or meme, such as a dog with a hat. This fungibility enhances their liquidity, allowing larger groups of investors to participate—a distinct advantage over NFTs, which often suffer from low liquidity and fragmented markets.

The memecoin market has experienced remarkable growth, with a compound annual growth rate (CAGR) of approximately 45% over the past three years. This explosive expansion reflects increasing adoption among retail investors, rising trading volumes across significant exchanges, and the cultural virality driving new token creations. If this growth trajectory continues, the total market capitalization of memecoins, estimated at $150 billion, is projected to exceed $218 billion by the end of 2025. This forecast assumes sustained interest from younger demographics, continued innovation in Layer 1 blockchains supporting memecoins, and a stable macroeconomic environment conducive to speculative investments. While risks remain, investors interested in gaining exposure to digital assets may bypass utility coins with pseudo technology and focus solely on Bitcoin and memecoins.

About the Author
Authored by Dr. Nagendra Bharatula, Founder and Senior Portfolio Manager of G-20 Group & Dr. Demelza Hays, Portfolio Manager at Zeltner & Co. and Chief Economist at Cointelegraph

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