In the past, meme tokens rallies have been similar to record-setting art auction prices in predicting the top of the market. It might be different this time.
Meme tokens are on the rise again and are doing better than bitcoin and ether. Analysts say that while this has always been a sign of a market-wide crash in the past, this time, it’s different.
Dogecoin (DOGE), the biggest meme token by market cap, has gained 21 per cent in the past week and is now trading near $0.09, which is the most since June 1. Data from CoinDesk shows that Shiba Inu (SHIB), which calls itself the “dogecoin killer,” went up more than 50% and hit a three-month high of $0.00001700. Bitcoin (BTC) and ether (ETH), which are the market leaders, have only gone up 3% and 11%, respectively.
Some investors are worried because meme token rallies have often been signs that you shouldn’t follow the crowd and should be less bullish on the market as a whole.
After DOGE had a triple-digit rise in April 2021, beating both bitcoin and ether, the market value of all cryptocurrencies dropped by half to $1.25 trillion in two months. In the same way, SHIB’s rise in late October and early November caused the crypto market’s value to peak at more than $3 trillion before falling back.
Experts have said that Dogecoin and other coins like it don’t have enough use cases. So, a rise in the price of tokens may be seen as a sign of market froth at the top of a bull market. One comparison would be how traditional market analysts see record-setting art auction prices as signs of financial market bubbles and economic collapse.
A trader and analyst, Alex Kruger, says that the latest rise in meme tokens seems to be due to news and not a speculative frenzy.
“As dog coins rise, some crypto traders may be worried that this bull run is coming to an end. The rise of dog coins marked the end of the two bull runs in 2021, “Kruger tweeted. “But if you look closer, you’ll see that this dog run just started and is based on news. I’m especially interested in the DOGE run.”
Dogechain, a smart contract network that works with Ethereum and was built with Polygon Edge, went live at the beginning of this month and got much attention on social media.
Meme tokens Community
The community has called the project “layer 2 for Dogecoin” because it makes it possible to make decentralized apps and tokens that can’t be exchanged for cash. So, the token is no longer just a joke, at least in the eyes of the DOGE community.
“The announcement of Dogechain is a big reason for the rise in Dogecoin,” Igneus Terrenus, a spokesperson for the cryptocurrency exchange Bybit, said. “Sometimes, having the word “doge” in your name is a more powerful tool for an L1 than a nine-figure VC check.”
Terrenus said, “Crypto is very dependent on meme culture, and projects that can get a big share of attention usually do better from a price point of view.”
Even so, it might be too soon to say that the rally in meme tokens is a sign of a speculative frenzy since DOGE and SHIB are still 80% below their highs. Even though bitcoin has increased by more than 30% in the past two months, it is still down by 65% from its record high of $69,000 in November. Since November, the market has been going down steadily. This is mostly because the Federal Reserve has been raising interest rates. It’s unlikely that traders are betting on cheap coins like SHIB and DOGE to make quick money.
Matthew Dibb, COO and co-founder of Stack Funds, said that it’s common for other cryptocurrencies, like meme tokens, to rally on the back of ether.
In the past four weeks, the price of Ethereum’s native token, called “the Merge,” has doubled to $2,000. This is because developers announced that the long-awaited technology upgrade, which they call “the Merge,” will likely happen in the middle of September.
“When the price of ETH is high, speculators will try to move their holdings into more risky tokens,” Dibb said. “People are again interested in meme coins and tokens from 2017 with low liquidity, like EOS.”
If investors want to know if the market bounce is still going strong, they might want to look at other things.
“Macro headwinds like the Fed’s approach to taming inflation and problems with the supply chain, the Ethereum Merge and the speculative trading that came with it, and the Mt. Gox Bitcoin unlock remain the bigger unknowns for the market as a whole than the mostly harmless fun of memecoins like DOGE,” said Terrenus of Bybit.
