Crypto Crash Impacts Memecoins: Will the Market Rebound or Signal a Broader Bear Market?
Summary:
The recent crash in the cryptocurrency market has impacted memecoins, leading to a 9% drop in total market capitalization. Memecoins like Pepecoin, Shiba Inu, and ApeCoin saw a decline of 25%. This raises questions about the broader market's future and whether it indicates a bear market or just reflects memecoin underperformance. Memecoins rely on memes and online communities, lack intrinsic value, and exhibit volatility. The market saturation with copycats also diverts attention from traditional cryptocurrencies. Investor sentiment may be affected, potentially extending the bear market. However, memecoins have historically experienced fluctuations and may not always underperform. External factors influence memecoin prices, and market trends are driven by news and events. This article serves as general information and not investment advice.
The recent crash in the cryptocurrency market had a significant impact on memecoins, resulting in a 9% decrease in total market capitalization between August 14 and August 21. Memecoins like Pepecoin (PEPE), Shiba Inu (SHIB), and ApeCoin (APE) experienced an even more substantial decline of 25% during this period. The question now arises whether this trend will have broader implications for the market as a whole, indicating a potential bear market, or if it solely reflects the underperformance of memecoins.
The emergence of memecoins, such as Dogecoin (DOGE), initially gained attention due to viral memes and community enthusiasm. However, their appeal has diminished due to various factors. These coins heavily rely on media buzz and online communities for promotion but lack intrinsic value beyond their meme origins. As a result, they often exhibit rapid price fluctuations and high volatility.
Moreover, the memecoin market has become overcrowded with imitators, diverting attention and resources away from more traditional cryptocurrencies. Investors have started to shift their focus towards new trends, which became evident during the mid-August crypto crash. Many of these memecoins, including PEPE and Milady Meme Coin (LADYS), have only emerged in the past six months. This underperformance may deter potential newcomers and create a negative sentiment, possibly extending the bear market to the broader crypto landscape. However, it is worth noting that such underperformance is not uncommon for memecoins, as seen in previous instances when APE, SHIB, and PEPE lagged behind the overall crypto market by 18% between June 5 and June 15.
The historical instances of memecoin underperformance should not be taken as a sign that they will consistently underperform the broader crypto market. It merely reflects the higher level of volatility within the memecoin sector, where market movements tend to be exaggerated. Therefore, it is unclear whether significant price drops are indicative of past events or an indication of a market correction.
Contrary to expectations, memecoins can also lag during bull markets. For example, between March 13 and March 30, memecoins experienced a decline while the total crypto market capitalization grew by 17.5%. It is essential to consider the aftermath of these recent instances of memecoin underperformance to determine whether the price drop signals a potential market bottom or merely indicates a shift in investor attention towards other cryptocurrencies.
Despite the bullish indicators, memecoin price action is influenced by various external factors. Following instances when memecoins underperformed in mid-June and late-March, the overall cryptocurrency market capitalization either remained stable or experienced notable gains in the subsequent weeks. Several factors could have influenced investor sentiment during those periods, such as BlackRock's application for a Bitcoin exchange-traded fund (ETF) on June 15.
Likewise, the expiry of Bitcoin options worth $4.2 billion on March 31 had an impact. This event was seen as a potential catalyst for Bitcoin (BTC) to strengthen its support level at $28,000 due to a significant imbalance between call (buy) options and put (sell) instruments. Call options outweighed put options by $1.2 billion, favoring Bitcoin bulls. This might have led to the use of profits from the options expiry to support the BTC price.
Although the last two sharp corrections in memecoins were not followed by broader declines in the cryptocurrency market, the possibility of Bitcoin finding support around $26,000 remains viable. However, it is essential to remember that market trends and memecoin price action are primarily driven by news and events, as demonstrated by the ETF and options expiry incidents. This article provides general information and should not be regarded as legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.
Published At
8/22/2023 8:03:00 PM
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