The recent cryptocurrency crash has hit memecoin hard, with a 9% drop in total market capitalization from August 14 to August 21. Shares of Pepecoin (PEPE), Shiba Inu (SHIB) and ApeCoin (APE) are down 25% over the same period. % recession. The big question is whether this trend affects the broader market, heralds a broader bear market, or simply reflects the lagging performance of memecoins.
Fueled by viral memes and community enthusiasm, memecoins like Dogecoin (DOGE) popped up. However, their appeal has waned due to a number of factors. These coins rely on media hype and online communities to gain traction, but they lack value beyond their meme origins. Their speculative nature results in rapid price changes and volatility.
Additionally, the memecoin market has become saturated with imitators, drawing attention and resources to more traditional cryptocurrencies.
Capital rotates as investors turn their attention to new trends
For traders, the cryptocurrency market crash in mid-August was a stark reminder of memecoin’s volatility. Many of these coins have emerged in the past six months, such as PEPE and Milady Meme Coin (LADYS). This could drive out new entrants and create negative sentiment, potentially extending the bear market to the broader cryptocurrency space.
However, this underperformance is typical for memecoins, as seen in the past, for example between June 5th and June 15th when APE, SHIB and PEPE lagged the overall crypto market by 18%.
These two examples don’t necessarily mean that memecoins will always perform worse than the broader crypto market. They reflect the industry’s high beta, and memecoins tend to exaggerate market movements. Still, it’s uncertain whether the excessive price declines are a backward-looking phenomenon or a sign of a market return.
Contrary to expectations, memecoins may also lag during bull runs. For example, between March 13 and 30, memecoin fell while the total cryptocurrency market cap rose by 17.5%.
After examining two recent examples of memecoins underperforming, it is crucial to examine the consequences. This needs to be determined whether the price drop is a sign that the market may have bottomed out, or just a sign that investors are shifting their attention to other cryptocurrencies.
Despite bullish evidence, external factors influence memecoin’s price action
Following the poor performance of Memecoin in mid-June and late March, the overall cryptocurrency market capitalization has either remained stable or seen a significant increase in the following weeks. During this period, many factors can affect investor sentiment. For example, this sentiment may have been influenced by BlackRock’s June 15 filing for a bitcoin exchange-traded fund (ETF).
Likewise, on March 31, $4.2 billion worth of Bitcoin options expired. The event is seen as a potential catalyst for Bitcoin (BTC) to strengthen its $28,000 support level. This was due to a significant imbalance between call (buy) and put (sell) instruments, with calls outperforming puts by $1.2 billion. This could benefit Bitcoin bulls and could lead them to use their expiry profits to prop up the price of Bitcoin.
However, with neither of the memecoin’s last two sharp corrections being replaced by broader cryptocurrency market declines, the possibility remains that bitcoin will find support around $26,000. However, as is evident from the ETF and option expiration events, market trends and memecoin price action are largely influenced by news and events.
This article is for general informational purposes only and is not intended and should not be construed as legal or investment advice. The views, ideas and opinions expressed here are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.