Meme coin bubble burst causes market turmoil, encryption industry faces new challenges

In the first quarter of 2025, the encryption market experienced a severe adjustment. Mainstream coins and some low market cap coins generally fell by more than 30%, and overall market confidence was undermined. This adjustment was triggered by multiple factors, including an increase in project runaways, a surge in low-quality projects, and the phenomenon of using celebrity effects to harvest retail investors reaching historical highs. These events triggered a chain reaction, leading to the spread of user pessimism and a sharp decrease in market liquidity. Data shows that the total market value of cryptocurrencies has evaporated by 28% compared to the peak at the beginning of the year, and market liquidity indicators have dropped to bear market levels of 2023.

Does this crisis triggered by speculative bubbles, security vulnerabilities, and regulatory pressures mean that the encryption market is gradually entering a winter?

1. Event Review: From Celebration to Collapse of the Meme Coin Market

1. Meme coin bubble burst

• A certain political figure's concept coin crash: The market value of a Meme coin associated with a certain political family once exceeded $15 billion, but plummeted 60% after launch, with funds diverted to other political tokens, causing market confidence to rapidly collapse.

• False information and hacker attacks: The account of a co-founder of a certain project was hacked, and a false Meme coin was promoted in the name of a certain political family, resulting in user asset losses of about $27 million and triggering a crisis of trust. Similar incidents have occurred multiple times in January 2025.

2. Market data reveals risks

• Meme coin trading volume accounts for 11% of the top 300 encryption assets (excluding stablecoins), but high volatility has resulted in a liquidation amount of 346 million USD within 24 hours.

• The issuance of new tokens on a certain public chain has surged, with statistics showing that the number of cryptocurrencies is close to 11 million, most of which are worthless Meme coins. A large amount of speculative trading has led the market into a "battle for attention", exacerbating the dilution effect of funds and gradually revealing a crisis of trust.

II. Multiple Incentives Behind the Collapse

1. Community-driven vulnerabilities

Meme coins rely on community consensus and emotional speculation, lacking technical or application support. For example, a certain Meme coin has rapidly risen due to a specific cultural symbol, with its price volatility having a correlation of 0.93 with social media sentiment index. Once negative events or celebrity comments trigger panic, the risk of a crash significantly increases.

2. Security vulnerabilities and user information leakage

• Frequent hacker attacks: Meme coin projects, due to low technical thresholds and weak security measures, have become primary targets for hackers. In addition to the aforementioned incidents, the theft of user funds from a certain exchange in November 2024 has exposed the industry's security shortcomings.

• Proliferation of fraudulent projects: Using celebrity influence for speculation has become a common tactic for criminals, resulting in losses for investors due to information asymmetry. Recently, whether it was the craze sparked by a certain celebrity's pet or a certain country's president promoting a certain coin, these events have been exploited by some operators to manipulate prices and siphon off funds from new investors.

3. Regulatory pressure and deteriorating market environment

• Regulatory tightening: Relevant departments in the United States have begun to shift towards "guided regulation," and related bills attempt to clarify the division of responsibilities between different regulatory agencies. However, the risk of policy execution gaps has further exacerbated market uncertainty. At the same time, regulatory agencies in a certain region issued a risk warning for Meme coins on February 17.

• Market oversaturation and macroeconomic shocks: Meme coins have siphoned off the speculative premium of technological altcoins, and the competition among 36 million altcoins for limited funds has led to diluted market liquidity. Factors such as US national debt exceeding $36 trillion, downgrading of debt ratings, and escalation of trade wars have intensified expectations of tightening global liquidity, putting pressure on the cryptocurrency market in sync with other risky assets.

3. Chain Reaction: Are Bear Market Signals Here?

1. Investor confidence is shaken: Data shows that only 0.412% of wallets made over $10,000 in profit through Meme coin trading, while over 99% of participants became "bubble victims".

2. Capital flight and liquidity exhaustion: The collapse of Meme coins triggered a massive capital flight from the encryption market, with Bitcoin price falling from a high of $100,000 to $96,000, as the market entered a "risk-off mode" and liquidity decreased.

3. The trust crisis in the industry is intensifying: decentralized projects are accused of becoming "vassals of power", such as a certain project suffering a loss of tens of millions of dollars, exposing the risks of political manipulation and capital harvesting.

4. Technical narrative fatigue: Although a certain public chain upgrade attempts to enhance performance through account abstraction and Layer2 optimization, some new public chains are overvalued, and technological innovation has failed to hedge against market speculation.

5. Developers and project parties are becoming estranged: The market is flooded with profit-taking projects and fake communities, making it difficult for quality projects to receive proper attention. For example, a certain RWA project promised $4.5 billion in asset support, but the actual TVL was only $64 million, severely damaging the confidence of developers and project parties.

4. Bear Market Survival Strategies: Six Golden Rules for Ordinary Players

In the context of the current market trust crisis and capital exhaustion, how should ordinary players protect themselves and seek a way out in a bear market? The core of survival in a bear market is: stay calm in the frenzy, and accumulate in the trough. The following six golden rules may provide some ideas for investors:

1. Rational analysis, reject blind following: Stay calm, think independently, focus on fundamental research, and be wary of projects that rely on hype and gimmicks.

2. Diversify investments to reduce the risk of a single asset: By diversifying investment layouts, balance the impact of market fluctuations and enhance overall risk resistance.

3. Strengthen security protection and enhance defense awareness: Use hardware wallets, two-factor authentication, and other measures to conduct thorough investigations into project backgrounds to avoid losses due to security vulnerabilities or phishing scams.

4. Manage positions rationally and focus on risk control: Develop and strictly implement position management strategies, set reasonable take-profit and stop-loss levels, and avoid chasing highs and selling lows.

5. Closely monitor regulatory and market dynamics: Stay updated on the latest developments from domestic and foreign regulatory agencies as well as macroeconomic data, and flexibly adjust investment strategies.

6. Cultivate a long-term investment philosophy, focusing on the intrinsic value of projects: Stay away from short-term speculation, and patiently lay out quality projects with robust technology, clear business models, and excellent team support.

Conclusion

The cycles never repeat, but the patterns are eternal. History shows that each cycle of the encryption market is different, but the underlying patterns (such as institutionalization and technological iteration) always exist. The collapse of this Meme coin is not only a reflection of the market's cyclical adjustment but also an opportunity for the encryption industry to transition from "speculative frenzy" to "value construction."

Although the current market sentiment is sluggish and liquidity is sharply shrinking, just as the periodic adjustments in the market often create opportunities for long-term reshuffling and structural upgrades, each crisis can become an important turning point for the industry to reshape trust and move towards maturity. A short-term bear market may be unavoidable, but in the long run, only through technological innovation, improved regulation, and enhanced user security awareness can the foundation of trust in the industry be rebuilt, driving the encryption ecosystem towards a healthy and transparent direction.

The future of the encryption market depends on the conscious choices made at every step right now.