Analyst Marcel Pechman says meme-coins reflect a higher beta for the entire crypto industry. Leading meme coins PEPE, SHIB, and APE all saw sharp drops of 25% on a weekly basis. Does this indicate a deepening Bitcoin and altcoin bear market? The analyst seeks an answer to this question.
Three popular altcoins fell hard, what’s wrong?
cryptocoin.com As you follow, the recent crypto crash hit meme-coins hard. In the process, meme-coins saw a 9% drop in overall market capitalization from August 14 to August 21. During the same period, Pepecoin (PEPE), Shiba Inu (SHIB) and ApeCoin (APE) fell by 25%. The question is whether this trend will impact the wider market, point to a broader bear market, or simply reflect the lagged performance of meme-coins.
Total crypto market cap (blue) with PEPE (green), SHIB (red), APE (orange). August 2023. Source: TradingViewMeme-coins like Dogecoin (DOGE) burst onto the scene with viral memes and community enthusiasm. However, their appeal has waned due to various factors. These coins rely on media hyperbole and online communities for attention. However, they are of no value beyond their meme origins. Their speculative nature leads to rapid price changes and volatility. Moreover, the meme-coin market is saturated with imitations. Its focus and resources are attracting more traditional cryptocurrencies.
Investors are shifting their attention to new trends!
For traders, the crypto market crash in mid-August was a stark reminder of meme-coin volatility. Many of these altcoin projects, such as PEPE and MiladyMemeCoin (LADYS), have emerged in the past six months. It is possible that this will drive new entrants away. It is also likely to spread the bear market to the wider crypto landscape, creating a negative mood. However, this underperformance is typical for meme-coins, as seen in the past when APE, SHIB, and PEPE outperformed the overall crypto market by 18% between June 5 and June 15.
Total crypto market cap (blue) with PEPE (green), SHIB (red), APE (orange). June 2023. Source: TradingViewThese two examples do not mean that these altcoin projects will always outperform the broader crypto market. These reflect a higher beta in the industry where meme-coins tend to exaggerate market movements. However, it is unclear whether the extreme price drops are a retrospective phenomenon or indicate a market reversal. Contrary to expectations, it is possible for meme-coins to lag during bull markets as well. For example, between March 13 and March 30, meme-coins fell, while the overall crypto market gained 17.5%.
Total crypto market cap (blue) with FLOKI (green), SHIB (red), APE (orange). March 2023. Source: TradingViewAfter looking at the two most recent examples of meme-coin underperformance, it’s important to examine what follows. This requires determining whether the price drop signals a possible market bottom or just shifting investors’ attention to other cryptocurrencies.
Cryptocurrency market total capitalization. Source: TradingViewExternal factors influence these altcoin price movements
After the mid-June and late-March period when meme-coins underperformed, the overall cryptocurrency market capitalization either remained stable or experienced notable gains in the following weeks. It is possible that many factors affected investor sentiment during these periods. For example, BlackRock’s application for a Bitcoin exchange-traded fund (ETF) on June 15 may have had an impact.
Similarly, Bitcoin options worth $4.2 billion expired on March 31. This event was seen as a potential catalyst for Bitcoin to strengthen the $28,000 support level. This was due to the significant imbalance between call (buy) options and put (sell) instruments. Call options surpassed put options by $1.2 billion. This has probably worked for the Bitcoin bulls. It also likely led them to use their profits from expiry to support the BTC price.
However, the last two sharp corrections in these altcoin prices did not reflect the broader crypto market declines. Therefore, the possibility of Bitcoin finding support around $26,000 remains a possibility. However, market trends and meme-coin price action are primarily driven by news and events, as evidenced by the ETF and options expiry events.
