As cryptocurrencies bounced back from June lows this year, meme coins have outperformed bitcoin and ether in recent days, prompting some investors to question whether risk plays are back in favor.
Dogecoin DOGEUSD,
jumped 16.3% and another dog theme Shiba Inu SHIBUSD,
advanced 32.7% over the past seven days, though the coin is still down more than 50% year-to-date, according to CoinDesk data. In comparison, bitcoin BTCUSD,
up 2.7% and ether ETHUSD,
rose 9% for the seven-day stretch.
Part of Dogecoin’s rally can be attributed to the launch of Dogechain last week, a blockchain that uses wrapped Dogecoin to power decentralized applications. “There is some buying of doge tokens to kind of bridge over to the native doge chain,” Luke Farrell, crypto trader at GSR, said in an interview.
The rise in meme coins also coincided with the bounce of some meme stocks, such as Bed Bath and Beyond BBBY,
which jumped 98% in the last five days. “It’s under the backdrop of a kind of technical August that’s almost prone to this kind of retail auto plot having an outsized price impact,” Farrell said.
As US inflation eased in July, investors who have avoided risk earlier this year began to return to the field. Meanwhile, some companies’ buyback programs have been revived, lifting share prices, Farrell added.
Also, August is “normally a very slow summer month. There aren’t many sellers left who haven’t already done so in the first half of the year, Farrell said. “And that ends up with the opportunity for retail or smaller investors or a bunch of technical buyers to move the price up a lot with some risk-taking speculation,” Farrell said.
Joel Kruger, marketing strategist at LMAX, echoed the point. The rise of dog-themed tokens is driven by a combination of factors, including the stabilization in bitcoin and ether, a rise in global market sentiment and enthusiasm around the upcoming Ethereum upgrade, according to Kruger.
“Retail investors are looking at all these positive signs and are using them as an opportunity to establish exposure in higher-risk cryptoassets that they hope will give them more bang for their buck,” Kruger said.
However, both Farrell and Kruger warned that investors should be cautious. The macro environment remains uncertain in recent months and is likely to dominate crypto prices, Farrell noted, pointing to the next Federal Reserve policy meeting in September and the US midterm elections afterward.
Any “legitimate rally” in crypto must be followed, if not led by bitcoin and ether, Kruger said. “Currently, we are not getting the positive confirmation from bitcoin and ether, which suggests that these retail traders should proceed with caution,” Kruger said.
Hear from Mike Novogratz at the Best New Ideas in Money festival on September 21st and 22nd in New York. The Galaxy Digital boss has ideas for navigating the crypto winter.
