Meme tokens’ performance signals a ‘risk-on’ market
The return of meme token hype, after a subdued period, signals a renewed taste for risk on crypto markets. The growth of leaders like Pepe (PEPE) points to a ‘risk-on’ attitude after a period of more fearful trading.
Based on Artemis data, meme tokens are breaking out from more serious narratives once again. During the past monitoring period, leading narratives only posted small-scale losses instead of gains. Meme tokens posted their usual high-level daily gains.
But according to Artemis, the meme token behavior went beyond their usual price swings. The behavior of meme tokens also suggests renewed appetite for risk on the market.
“It’s clear that memes are an indicator of risk-on markets, being so liquidity and attention driven as they are,” commented Artemis analysts in an alpha tip group.
The market cap of meme tokens closely followed the overall market recovery. The assets reacted to increased trading volumes, growing their overall market cap by 25%, to recover to $50B.
Other narratives are still posting small gains, with AI and DePin tokens also enjoying more active appreciation.
AI and DePin are the biggest winners in the last 24 hours pic.twitter.com/OhvhyuZmIF
— Artemis (@artemis__xyz) July 15, 2024
However, according to Dune Analytics, trading older trends and narratives remains risky, especially if the tokens stagnate. Narrative-based tokens slid by nearly 20% in 2024, with small net gains in the past month.
The latest meme token gains, however, affect mostly the leading assets in the sector. Overall, the Meme 1.0 group outperformed and still held a bigger weight in terms of market cap. SHIB and DOGE are still ahead of the most successful Meme 2.0 tokens, PEPE, WIF and BONK.
Meme tokens create network congestion
Meme tokens gained a net 42% over the past quarter, and are still up 289% for the year to date. With that performance, meme tokens look like a tool to save portfolios from stagnation. But memes assets are also using up liquidity, which in past cycles would have supported utility projects.
Meme tokens may also start creating problems for the networks where they run. Technologically, the millions of meme tokens may start posing problems for the networks where they are launched. On Pump.fun alone, more than 1.4M new tokens have been created since the project’s launch. Meme tokens may be taking valuable bandwidth, while offering no utility or even a minimal product.
Meme tokens are already discouraging some users from engaging with chains like Arbitrum or even Base. The limitless ability to create tokens may start raising fees or causing delays even for those fast chains.
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In the case of Solana (SOL), the increased trading volume adds to the problem of failed transactions. Optimism also aimed to increase its speed with a recent upgrade, but the improvement actually decreased demand. Very cheap blockchains tend to invite meme token frenzy, which pushes away other use cases like Web3 features, games, DeFi and other types of assets.
The meme craze does not even surpass chains previously dedicated to gaming and Web3. The WAX blockchain recently released LaunchBAGZ, a tool similar to Pump.fun, for cheap and unlimited token creation.
Rug pulls are also a problem, becoming ubiquitous for small pools, but sometimes affecting millions in liquidity. The SLURP token was among the latest assets to rug pull after days of relatively normal trading.
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On the financial side, meme tokens are competing for even more scarce liquidity. Most L2 chains still depend on inflows from Ethereum-based stablecoins to trade other assets. The Solana blockchain depends on SOL, and some pools require WETH to facilitate trading. Meme tokens fail fast without constant liquidity support.
In the previous months, celebrity tokens also drained some of the available liquidity. Now, the new trend is for rug pulls to continue extracting tokens from the market. Even with the addition of millions of new tokens and highly active chains, the meme sector is taking away funds from other markets.
At this stage, the meme index is still near its all-time high. The chief advice is to avoid small coins, and instead focus on the established leaders.
Cryptopolitan reporting by Hristina Vasileva
