The performance of memecoins like Dogecoin (DOGE), Shiba Inu (SHIB), and Pepe (PEPE) in the cryptocurrency market on May 6 highlighted a deviation from the momentum that had previously driven the sector higher. According to data from CoinGecko, the total market capitalization of memecoins decreased by 2.7% in the last 24 hours, amounting to $55.48 billion.
Among the memecoins, Bonk (BONK) experienced the biggest decline, losing 6% of its market value in the last 24 hours. Floki (FLOKI) followed with a 3.3% loss, while Memecoin (MEME) ranked third with a decline of 3% over the same period.
The leading meme token, DOGE, saw a 2.1% price decrease on May 6, bringing its market cap to $22.74 billion. Notably, DOGE still accounts for nearly 41% of the total market share of memecoins. Its rival, SHIB, also experienced a correction on the same day, with a 2.4% decrease in price and a market cap of $14.29 billion, solidifying its position as the second most popular memecoin.
Various factors contribute to the decline in memecoins. Firstly, the altcoin market structure appears weak, as the pullback in memecoin prices coincides with a correction in the Total3 index. Total3 represents the total market cap of all cryptocurrencies excluding Bitcoin (BTC) and Ether (ETH), and it has experienced a 15% decrease since the first week of April, amounting to $661.41 billion. This pullback has resulted in a descending parallel channel formation on the weekly chart, indicating a trend reversal or corrective pullback.
Moreover, memecoin trading volumes have been declining since early March. Data from Dune reveals that memecoin transaction flows across all blockchains, including Ethereum and Solana, have collectively dropped by 81% from their recent peak of approximately $998.55 million in March to $191.88 million in the week ending May 3. This decline suggests a waning interest or confidence among traders in the memecoin sector.
The decreasing possibility of interest rate cuts by the United States Federal Reserve in 2024 has also contributed to a risk-off sentiment in the crypto market, particularly affecting memecoins. These memecoins have been among the most profitable assets so far in 2024. As the U.S. economy strengthens, traders are more inclined to invest in safe yield assets like U.S. Treasurys rather than non-yielding assets like digital currencies. This shift reduces the appeal of riskier investments, including memecoins, and investors may be taking profits from memecoins in the first quarter of 2024 to invest in other sectors of the crypto ecosystem.
It is important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and analysis before making any investment decisions.