Are 25% Drops in PEPE, SHIB, APE a Sign of a Deepening Crypto Bear Market?

Author: MARCEL PECHMAN, COINTELEGRAPH; Compiler: Songxue, Jinse Finance

The recent cryptocurrency crash has hit memecoin hard, with a 9% drop in total market capitalization from August 14 to August 21. During the same period, Pepecoin, Shiba Inu and ApeCoin fell by 25%. The big question is whether this trend affects the broader market, heralds a broader bear market, or simply reflects a lagging memecoin performance.

Total cryptocurrency market capitalization (blue) vs. PEPE/USDT (green), SHIB/USDT (red), APE/USDT (orange), August 2023. Source: TradingView

Memecoins like Dogecoin popped up, fueled by memecoins and community enthusiasm. However, their appeal has waned due to a number of factors. These cryptocurrencies rely on media hype and online communities to gain traction, but they lack value beyond their memecoin origins. Their highly speculative nature results in rapid price changes and volatility. **

Additionally, the memecoin market has become saturated with copycats, drawing attention and resources to more traditional cryptocurrencies.

Capital rotation as investors turn their attention to new trends

For traders, the cryptocurrency market crash in mid-August was a stark reminder of memecoin’s volatility. Many of these cryptocurrencies have emerged in the past six months, such as PEPE and Milady Meme Coin (LADYS). This could drive out new entrants and create negative sentiment, potentially extending the bear market to the broader cryptocurrency space.

However, this underperformance is typical for memecoins, as seen in the past, for example between June 5th and June 15th when APE, SHIB and PEPE lagged the overall crypto market by 18%.

Total cryptocurrency market capitalization (blue) vs. PEPE/USDT (green), SHIB/USDT (red), APE/USDT (orange), June 2023. Source: TradingView

These two examples don’t necessarily mean that memecoin will always perform worse than the crypto market as a whole. They reflect the industry’s high beta, and memecoins tend to exaggerate market movements. Still, ** is not yet sure whether the excessive drop in prices is a lagging phenomenon or a sign of a market return. **

Contrary to expectations, memecoins may also lag during bull runs. For example, between March 13 and 30, memecoin fell while the total cryptocurrency market cap rose by 17.5%.

Total cryptocurrency market capitalization (blue) vs. FLOKI/USDT (green), SHIB/USDT (red), APE/USDT (orange), March 2023. Source: TradingView

**After examining two recent examples of memecoin underperformance, it is critical to probe the consequences. This needs to be determined whether the price drop is a sign that the market may have bottomed out, or just a sign that investors are shifting their attention to other cryptocurrencies. **

Total cryptocurrency market cap, USD. Source: TradingView

Despite bullish evidence, external factors are influencing memecoin price action

Following the underperformance of memecoins in mid-June and late March, overall cryptocurrency market capitalization has either remained stable or seen significant gains over the ensuing weeks. During this period, many factors can affect investor sentiment. For example, this sentiment may have been influenced by BlackRock’s June 15 filing for a bitcoin exchange-traded fund (ETF).

Likewise, on March 31, $4.2 billion worth of Bitcoin options expired. The event was seen as a potential catalyst for Bitcoin to strengthen its $28,000 support level. This was due to a significant imbalance between call (buy) options and put (sell) instruments, with calls outperforming puts by $1.2 billion. This could benefit Bitcoin bulls and could lead them to use their expiry profits to prop up the price of Bitcoin.

However, with neither of the memecoin’s last two sharp corrections being replaced by broader cryptocurrency market declines, the possibility remains that bitcoin will find support around $26,000. However, as is evident from the ETF and option expiration events, market trends and memecoin price action are primarily influenced by news and events. **