The Matthew Effect

The Matthew Effect basically means that the strong get stronger and the weak get weaker. We have been seeing this frequently over the past few years in both the crypto and stock markets. We have witnessed a concentration of wealth in the "Mag 7" (Magnificent 7); because people are earning money from these stocks, they continue to put even more money back into them.

The Web3 space is the same. People used to buy meme coins and altcoins frequently, but many of them failed to get a decent return. This has made the "ceiling" for meme coins lower and lower. It used to be common to see top-performing meme coins reach a multi-billion dollar market cap; then it became half a billion. Now, even at a 100M market cap, people get scared and start selling. Consequently, people would rather buy BTC now instead of investing in any altcoin.

There are many reasons used to explain this, such as insider trading, rug pulls, and scams. However, the main reason is social media. The only reason any stock or coin increases in price is that there are people buying it at a higher price; therefore, we definitely need people to hear about it first.

That is also the fundamental basis of meme coins: "hype." A meme coin has nothing behind it, but if enough people hear about it, it becomes successful. Because of the social media effect, we are seeing the Matthew Effect daily. It is no longer even the 80/20 rule; the top 1% of influencers are now receiving over 90% of the attention and web traffic.

We are seeing the exact same thing in the stock market as Reddit and Telegram become the main sources of information. Therefore, if a stock gets enough mentions, it can still go up significantly even if the fundamentals are not good.

This is causing 90% of altcoins to suffer a slow death because BTC is always standing there. The strong (BTC, Mag 7) get stronger, while the weak (altcoins, meme stocks) get weaker. Social media is simply amplifying the entire situation, shifting toward a reality where the top 1% of stocks and BTC control 90% of the liquidity.

Sources & Further Reading

More in Crypto