As an experienced analyst, I believe that the recent underperformance of memecoins like Dogecoin (DOGE), Shiba Inu (SHIB) and Pepe (PEPE) is a result of several interconnected factors. Firstly, the overall altcoin market structure has weakened in recent weeks, with TOTAL3 experiencing a significant pullback after a rally that began in October 2023. This correction has led to the appearance of a descending parallel channel on the weekly chart, suggesting that altcoins, including memecoins, could continue correcting over the next few weeks.
On May 6, memecoins such as Dogecoin (DOGE), Shiba Inu (SHIB), and Pepe (PEPE) showed weaker performance compared to the overall cryptocurrency market. This discrepancy underscores a shift from the upward trend that boosted this sector during the previous week.
According to CoinGecko’s data, the overall value of memecoins on the market decreased by 2.7% within the past 24 hours, currently sitting at $55.48 billion.
Over the past 24 hours, Bonk (BONK) experienced the greatest downturn, dropping by 6%. Next was Floki (FLOKI), which fell by 3.3%, and Memecoin (MEME) rounded out the top three with a decline of 3%.
As a researcher studying the cryptocurrency market, I’ve observed that DOGE, which currently holds the title as the most valuable meme token by market capitalization, experienced a 2.1% price decrease on a given day. Consequently, its market cap now stands at $22.74 billion. It’s important to note that this setback hasn’t diminished DOGE’s significant influence within the memecoin sector, as it still controls approximately 41% of the total market share.
On May 6, SHIB, a notable rival, experienced a correction and declined by 2.4%, resulting in a market capitalization of $14.29 billion, thereby solidifying its standing as the second most widely-followed memecoin.
Let’s look at some of the reasons why memecoins are down today.
Weak altcoin market structure
Historically speaking, altcoins have often fueled bull markets in the crypto sector. But currently, following the recent downturn in memecoin values, the total market capitalization of all cryptocurrencies except Bitcoin and Ethereum (TOTAL3) has retreated after its surge that started in October 2023.
The graph indicates a 15% decrease in TOTAL3’s value since the beginning of April, down to $661.41 billion. This decline has given rise to a descending parallel channel on the weekly chart as depicted below.
During the peak of the Solana memecoin craze, traders cashed in their gains when the weekly RSI reading for the relative strength index exceeded 70, signaling an overbought condition.
When the Relative Strength Index (RSI) of altcoins surpasses 70, it indicates that they have been overbought and potentially overvalued. Consequently, a trend reversal or corrective action may ensue.
As a researcher studying the cryptocurrency market, I’ve observed that altcoins have been following an extended slump, evident in TOTAL3’s descent within a descending parallel channel. The Relative Strength Index (RSI) has shifted from a value of 89 to 62 over the past seven weeks, implying that current market conditions remain favorable for bearish trends.
As a crypto investor, I’ve been closely watching the price action of Total Crypto Market Cap (TOTAL3) and have noticed it forming a declining channel with resistance at $660 billion. If this level fails to hold and TOTAL3 continues to trend downwards, I believe major altcoins and even some memecoins could face additional correction in the coming weeks. This is based on historical market behavior where a strong downtrend in the total crypto market cap often pulls down individual altcoin prices as well.
Memecoin trading volumes continue to drop
Memecoin weekly trading volume has been reducing since early March, as reported by CryptoMoon.
As a researcher studying memecoin transaction flows, I’ve observed a significant decrease in activity across all blockchains, including Ethereum and Solana. The data from Dune indicates that the collective volume of these transactions dropped by approximately 81% between March, when it reached around $998.55 million, and the week ending May 3, which recorded only $191.88 million in transaction value. This decline points towards a possible decrease in trader interest or confidence within this sector recently.
As an analyst, I’ve examined the historical trading data of various meme coins on CoinMarketCap. Between March 7 and May 6, I noticed that Dogecoin (DOGE) experienced a significant decrease in trading volume, approximately 50% less than before. Likewise, Shiba Inu (SHIB) and Pepe the Frog (PEPE) both suffered substantial losses in trading volume, with SHIB down 88% and PEPE down 51% over the same time frame.
Traders de-risk after strong U.S. macroeconomic data
The reduction in expected rate cuts by the U.S. Federal Reserve as mentioned in the May 1 FOMC statement has contributed to a pessimistic outlook in the crypto market, significantly impacting memecoins, which have seen significant profits in 2024.
With the American economy showing signs of improvement, investors are increasingly drawn to financial instruments offering returns, like U.S. Treasury bonds, over non-yielding assets such as cryptocurrencies.
I. With this transition, the allure of riskier investment options, like memecoins, seems to wane. Therefore, investors might be transferring their profits gained from memecoins during the initial quarter of 2024 into different sectors within the crypto marketplace.
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2024-05-07 01:06