Many meme coins took a nosedive this week as retail traders panicked and sold off amid a worsening crypto outlook. On Dec. 13, the market cap of all meme coins tracked by CoinGecko dropped 12% to $113 billion. Smaller tokens were hit harder, with Brett on the Base Blockchain falling 11.2% on Thursday and 23% in the last seven days. Peanut the Squirrel, a Solana meme coin that recently went viral, plunged 40% in the past week. Popcat, Turbo, and Mog Coin also performed poorly, and the market cap of all Solana meme coins decreased by 15% to $15.5 billion.
The crash of meme coins is linked to Bitcoin’s performance. After reaching a record high of $108,200, Bitcoin dropped below $100,000 due to profit-taking and concerns raised by the hawkish Federal Reserve, which indicated only two cuts in 2024 over inflation worries. Meme coins typically fall when Bitcoin slips, and their decline is usually more severe as they are mostly held by retail investors chasing the bullish trend, unlike Bitcoin with significant institutional support from the likes of MicroStrategy, Marathon Digital, and Tesla, and Bitcoin ETFs with over $115 billion in assets. On-chain metrics show this trend, like in Peanut the Squirrel where the number of smart money investors dropped to 35 from nearly 100 last month, and in Brett where the number of smart money holders and their balances have decreased in recent weeks.
However, there’s a chance these meme coins and Bitcoin could rebound. Firstly, Bitcoin is still in an uptrend and this retreat might just be a pause. Technical analysis suggests Bitcoin could peak at around $122,000 in this bullish cycle. Secondly, historically, Bitcoin and altcoins tend to perform well in the first quarter of the year. CoinGlass data shows Bitcoin has an average return of 56% in Q1, making it the second-best quarter after Q4. Thirdly, financial assets often overreact to major events and then stabilize as traders adapt. An example is the plunge and subsequent rebound of stocks and crypto after COVID was declared an emergency in March 2020.
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