Memecoins sell-off as Bitcoin price takes the spotlight — Is meme season over?


Memecoins like Dogecoin (DOGE), Shiba Inu (SHIB) and Pepe (PEPE) are among the cryptocurrencies underperforming the market on May 6, highlighting a diversion from the momentum that drove the sector higher last week. 

Data from CoinGecko shows that the total market capitalization of memecoins has dropped in the last 24 hours, falling 2.7% to $55.48 billion.

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Bonk (BONK) declined the most, losing 6% of its market value over the last 24 hours. Floki (FLOKI) followed with a 3.3% loss, and Memecoin (MEME) came in third after declining 3% over the same period.

Performance of top-cap memecoins. Source: CoinGecko

DOGE – the leading meme token by market capitalization – saw a 2.1% price decline on the day, bringing its market cap to $22.74 billion. Notably, DOGE still accounts for nearly 41% of the memecoin sectors’ ’ total market share.

Its rival, SHIB, was also correcting on May 6, down 2.4% on the day, decreasing its market cap to $14.29 billion, cementing its position as the second most popular memecoin.

Let’s look at some of the reasons why memecoins are down today.

Weak altcoin market structure

From a historical perspective, the bull market is usually driven by a rally in altcoins. However, in line with the current correction of memecoin prices, TOTAL3 – the total market cap of all cryptocurrencies excluding Bitcoin (BTC) and Ether (ETH)- has experienced a pullback after its rally that began in October 2023.

The chart below shows that TOTAL3 has decreased by 15% since the first week of April to $661.41 billion. This pull-back has led to the appearance of a descending parallel channel on the weekly chart, as shown below.

Traders booked profits as the relative strength index (RSI) on the weekly chart became overbought after crossing 70 at the height of the Solana-based memecoin frenzy.

An RSI reading above 70 means the altcoins were becoming overvalued, so they embarked on a trend reversal or corrective pullback.

Total crypto market cap excluding BTC and ETH. Source: TradingView

Altcoins are still pursuing an extended downtrend, confirmed by TOTAL3’s downward movement inside a descending parallel channel. The RSI’s value has moved from 89 to 62 over the last seven weeks, suggesting that the market conditions still favor the downside.

If TOTAL3 fails to rise above the upper boundary of the declining channel at $660 billion, altcoins, including major memecoins, could continue correcting over the next few weeks.

Memecoin trading volumes continue to drop

Memecoin weekly trading volume has been reducing since early March, as reported by Cointelegraph.

Data from Dune reveals that memecoin transaction flows across all blockchains, including Ethereum and Solana, have dropped collectively by 81% from its recent top of roughly $998.55 million in March to $191.88 million the week ending May 3. This suggests that traders’ interest or confidence in the sector has waned lately.

Memecoins total trading volumes. Source: Dune

Looking at individual memecoins, historical data from CoinMarketCap shows that DOGE’s trading volume dropped by approximately 50% between March 7 and May 6. Similarly, SHIB’s and PEPE’s trading volumes have plummeted by 88% and 51% over the same period.

Related: BONK, POPCAT and Solana memecoins stay green even as Bitcoin price drops

Traders de-risk after strong U.S. macroeconomic data

The decreasing possibility of interest cuts by the U.S. Federal Reserve in 2024 according to the May 1 FOMC statement have also boosted risk-off sentiment in the crypto market, particularly affecting memecoins, which are among the most profitable assets so far in 2024.

​​Top crypto narrative profits in Q1: Memecoins +1,313%, RWA +286%

As the U.S. economy appears to strengthen, traders are more attracted to safe yield assets, such as the U.S. Treasurys, compared to non-yielding assets, such as digital currencies.

Consequently, this shift diminishes the appeal of riskier investments, including memecoins. As such, investors may be taking profits they made on memecoins during the first quarter of 2024 to invest in other sectors of the crypto ecosystem.