Memecoins Have Increased the Impact of Market Corrections This Cycle

Bitcoin ETFs pushed prices to new all-time highs before the 2024 halving. Feeling priced out, traders turned to meme coins as an alternative. This makes the most recent market crash particularly important.

Bitcoin is currently seeing a lot of selling activity and is trading below $60k. This has caused investors and traders to panic, especially after a brief crash to $53k on July 4th. That day, Bitcoin’s total market capitalization dropped by over 5.7% to around $2.114 trillion, flipping the Crypto Fear and Greed Index from greed to extreme fear.

The recent sell-off has led to varied opinions from experts. In a probable attention stunt, Peter Schiff, an American stockbroker, financial commentator, and radio personality,  said he believes the bull run has not started and the crypto bear market is far from over. On the other hand, the more rational Rachel Lin, CEO and co-founder of the derivatives trading platform SynFutures, sees the possibility of Bitcoin’s price dropping further to the $50k level before continuing its upward trend.

According to the news, the current decline in Bitcoin’s value is primarily due to uncertainty surrounding the strained US economy, particularly concerning interest rates. There have also been significant outflows from ETFs, with over $900M leaving these funds in late June.

Adding to the turmoil, the defunct Mt. Gox exchange, which once handled 70% of all Bitcoin transactions before losing over 740,000 Bitcoin in a 2014 hack, has moved 47,228 BTC as part of its repayment process. Compounding these issues, the German government, the fourth-largest nation-state Bitcoin holder, sold $900M worth of Bitcoin on July 8th and is preparing for more imminent sales. The combined selling pressure from the German government, Mt. Gox, and Bitcoin ETFs could lead to significant bearish pressure in the short term. 

Nevertheless, due to the rising popularity of meme coins, the latest downturn might offer significant benefits to the non-meme crypto market. 

Historically, the months before and shortly after a Bitcoin halving is crucial for Bitcoin and cryptocurrency adoption, acting as a “Goldilocks zone” where informed investors typically enter the market at low prices. But this time was different. The introduction of Bitcoin ETFs led to Bitcoin reaching a new all-time high before halving for the first time, giving would-be investors worse prices to enter the market around the halving. This likely damaged the retail adoption rate of Bitcoin. 

Essentially, Bitcoin’s price surged too quickly, leaving many investors feeling priced out of the market. As a result, there’s been a noticeable shift towards meme coins rather than the usual cryptocurrency investments. While overall cryptocurrency adoption is up, meme coins are becoming more dominant relative to other cryptocurrencies. 

Has this eaten away at Bitcoin hegemony? Data from IntoTheBlock shows the number of active Bitcoin wallets has dropped to multi-year lows, with just 614,770 active wallets recorded the week of May 27, the lowest since December 2018. Juan Pellicer, a senior researcher at IntoTheBlock, attributes this decline to weaker retail participation than in previous cycles. Meanwhile, the meme coin market has seen extraordinary growth, now valued at over $41 billion. That’s $41 billion, Bitcoin and other prominent altcoins don’t have. 

Another piece of evidence pointing to this has been the resilience of Solana, the blockchain used to mint the vast majority of new meme coins. SOL has recently eclipsed Ethereum in terms of investment inflows, securing over $16 million, surpassing Ethereum’s $10 million despite the recent market downturn. 

It has been the year of the meme coin. Bitcoin and prominent altcoins need to convince investors that they can also bring significant returns to win back investor sentiment from meme investors, and this could happen sooner than you’d think. The fact remains that Memecoins are short-term investments. While exceptions like Shiba Inu, PEPE , and Dogecoin have proven to stick around long-term, most meme coins end up being pump-and-dump schemes. 

As the first major post-2024 halving correction unfolds, analysts should monitor the influx of new BTC and altcoin investors compared to those entering the meme coin space in the weeks and months ahead; these will tell us if the meme coin hype is here to stay.

In this Bitcoin cycle, market crashes like the one we’ve seen are more crucial than ever because they create entry points for meme coin investors to enter the market. Falling prices will ultimately strengthen Bitcoin’s long-term performance by attracting new investors, and with $41 billion worth of meme coin capital up to play for, it’s all up for grabs. 

As the first major post-2024 halving correction unfolds, we should all keep an eye on the influx of new BTC and altcoin investors relative to those entering the meme coin space; this will tell us if the meme coin hype is here to stay or beginning to fizzle out.