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Popular memecoins such as Dogecoin (DOGE), Dogwifhat (WIF), and Pepe (PEPE) are currently experiencing a significant decline in value, signaling a decrease in the earlier excitement that once fueled the sector.
The recent drop in the top joke cryptocurrencies appears to be part of a broader trend in the crypto market ahead of the Bitcoin Halving 2024. Both Bitcoin (BTC) and Ether (ETH) have recently pulled back from their yearly highs as traders aim to secure profits, leading to similar strategies within the memecoin sector.
This decline is reminiscent of the reaction of memecoins prior to Bitcoin’s previous halving in May 2020, during which DOGE’s price fell by over 22.5%.
There is a strong positive correlation between Bitcoin and the top memecoins. For example, BTC’s daily correlation coefficient versus DOGE was 0.82, indicating a high likelihood that DOGE’s price trends will mirror those of BTC in the coming days.
Steno Research predicts that Bitcoin may follow a pattern similar to its 2016 halving, which could result in continued selling pressure for up to four months following the halving. This “sell-the-news” sentiment is further contributing to the depreciation of memecoin valuations.
The correction in the memecoin sector is accompanied by a significant decline in weekly trading volumes, as reported by data resource Dune Analytics. The total memecoin transaction flows across all blockchains, including Ethereum and Solana, have collectively dropped by 88% from their recent peak of around $1 billion. This suggests that traders’ interest and confidence in the sector have waned recently.
The decline in trading volumes across the memecoin sector has been further accelerated by reports of a Solana outage. During March and early April sessions, roughly 75% of all transactions on the network failed, primarily due to the increased activity brought on by the recent memecoin frenzy.
Solana has become the primary blockchain for retail users and memecoin traders, with trading volumes on its decentralized exchanges increasing by over 300% in Q1 2024 compared to the previous quarter, as noted by Peter Horten, a researcher at data analytics platform Messari. However, in recent weeks, Solana’s DEX volume trend has shifted downwards.
This decline in DEX activity has preceded a drop in the value of most top Solana-based memecoins.
The strong U.S. labor data and persistent inflation have led to an increase in bets on the delay in interest rate cuts by the U.S. Federal Reserve. This has had a significant impact on the crypto market, particularly affecting memecoins, which have been among the most profitable assets worldwide in 2024 so far.
According to CME data, expectations among interest rate futures traders have shifted significantly. Approximately 81% now believe that the Federal Reserve will keep interest rates steady at 500-525 basis points in June, compared to around 60% earlier in April.
Assets that yield, such as U.S. Treasuries, become more attractive during periods of higher interest rates compared to non-yielding assets like cryptocurrencies. As a result, the appeal of riskier investments like memecoins diminishes.
It is important to note that this article does not provide investment advice or recommendations. Investors should conduct their own research and make informed decisions.