Most meme coins plunged this week as many retail traders continued panic selling as the crypto outlook deteriorated.
The market capitalization of all meme coins tracked by CoinGecko decreased by 12% to $113 billion on December 13.
While most meme coins plunged, the selling was more pronounced among smaller tokens. Brett (BRETT), the largest meme coin in the core blockchain, fell 11.2% on Thursday and 23% over the past seven days.
Peanut the squirrel (PNUT), a Solana meme piece that went viral recently, plunged 40% in the last seven days. Likewise, Popcat (POPCAT), Turbo and Mog Coin were among the worst performing cryptocurrencies. The market cap of all Solana meme coins fell 15% to $15.5 billion.
Meme coins have crashed due to Bitcoin’s continued performance. After hitting an all-time high of $108,200, Bitcoin fell below $100,000, as we predicted earlier this week.
Bitcoin fell due to profit-taking and nervousness surrounding the hawkish Federal Reserve. At its final meeting of the year, the bank warned it would make only two cuts in 2024, due to concerns about inflation.
Meme Coins Crashed After Bitcoin Falls
Meme coins always fall when Bitcoin slides. Their decline is generally more marked because most of them are held by individual investors riding the bullish wave. This is different from Bitcoin, which has huge institutional investors like MicroStrategy, Marathon Digital, and Tesla. Bitcoin ETFs also have over $115 billion in assets. Historically, institutional investors have a longer investment horizon than retail traders.
A good example of this sale is on-chain metrics. According to Nansen, the number of smart investors in Peanut the Squirrel has fallen to just 35, down from nearly 100 last month.
The same trend is occurring in Brett, where the number of smart money holders and their balances have declined over the past few weeks. Brett has around 40 smart money holders, while their balances have fallen to their lowest level in months.
Will even coins bounce
It is likely that Bitcoins and these meme coins will rebound for three reasons. First, Bitcoin is still in an uptrend, with this pullback being a pause. Technicals suggest Bitcoin price will tops out at around $122,000 in this bullish cycle.
It is not uncommon for Bitcoin to pull back after reaching key resistance. For example, it experienced an extended consolidation when it hit an all-time high in March.
Second, historically, Bitcoin – and altcoins – do well in the first quarter of the year. Data by CoinGlass shows that the average return of Bitcoin in the first quarter is 56%. This makes it the second best quarter after Q4, meaning there’s a chance they’ll bounce back in Q1.
Third, financial assets often overreact in the event of a major event and then decline as traders adapt to the new normal. A good example of this occurred in March 2020, when stocks and cryptocurrencies plunged after COVID was declared an emergency. They then rebounded and reached a record high.