Is the Memecoin Craze Coming to an End?
The craze surrounding memecoins has been generating substantial profits for users, attracting traders who hope to make millions in just minutes. However, it is advisable to exit the memecoin market while ahead rather than holding on in the hopes of further gains.
Many traders learned this lesson the hard way when the crypto market experienced a sudden correction in April. This correction was likely triggered by the latest US manufacturing data for March, which revealed that the ISM Manufacturing PMI had risen from 47.8 to 50.3.
This spike in manufacturing activity indicated growth in the US economy, reducing the likelihood of a rate cut in June to below 50%, according to CME. Higher interest rates tend to discourage investors from riskier assets like Bitcoin, which in turn affects memecoins, the riskiest assets of all.
During a market-wide downturn, memecoins suffer the most among altcoins, as there is little chance of these crypto tokens bouncing back. Memecoins heavily rely on hype and FOMO (fear of missing out) to drive their rallies.
To provide some perspective, according to CoinMarketCap data, 8 out of the top 10 memecoins by market cap experienced losses in the last 24 hours. This includes Dogecoin, the favored memecoin of Elon Musk. Despite speculation that social media giant X may accept Dogecoin as payment, it failed to rally.
Other memecoins like PEPE, Dogwifhat, and Floki have also continued their downtrend, dropping an average of 12.5% over the past seven days. The few tokens that show some signs of life are relatively new and benefit from the hype surrounding them.
Furthermore, the memecoin frenzy surrounding Solana-based tokens, which launched at an incredibly fast pace, seems to be dying out. This could be due to investors seeking exposure and potentially better profits in other blockchain-based memecoins. Additionally, Whale Alert, a whale transaction tracking account, highlighted four transactions that collectively transferred over $158 million in SOL tokens to Coinbase. This move to exchanges is typically seen as a bearish sign that often leads to a sell-off.
One aspect of memecoin trading that traders often overlook is the risk involved. For example, Lookonchain, an on-chain data provider, noted a user who made around $550,000 trading the Hobbes memecoin. However, before finding success with Hobbes, the user had traded 36 other memecoins and suffered losses of nearly $140,000 in 26 of those trades. While the user ultimately made gains that covered their losses, this is not always the case.
Therefore, it may be wise to remove memecoins from your wallet if your pursuit of millions ends up costing you thousands.