Published: August 23rd, 2023
Once two of the market’s biggest bulls, popular meme coins Shiba Inu (SHIB) and Pepe (PEPE) shifted into reverse this week to become crypto’s biggest bears.
New figures from CoinGecko showed that over the past seven days, both coins have shed double-digit values, taking losses exceeding 20 per cent.
PEPE fell furthest with a 22 per cent decline to USD 0.00000111. SHIB posted a seven-day drop of 21.6 per cent, wallowing at USD 0.00000818 at time of writing.
PEPE experienced a notable rally two weeks ago when it added USD 150 million to its market cap and reached 70th place on the league table of top cryptocurrencies. Those gains evaporated over past week and dropped the coin back to 84th position.
The meme coin cull happened against a backdrop of broad-based negative sentiment. Bitcoin (BTC) and Ethereum (ETH) dropped significantly during the same seven-day period on news that Chinese property giant Evergrande would file for bankruptcy in a New York City court. The news promoted a series of risk-off moves and saw many investors flee positions in riskier assets like crypto.
Bitcoin had 11.4 of its value lopped off over the week and was trading at USD 26,037 at time of writing. Ethereum shed 9.5 of its value and was trading at USD 1,673 at time of writing.
In SHIB’s case the negative price performance may have been made worse by the tepid response to the launch of Shibarium, the layer-2 Shiba Inu blockchain on Ethereum.
Earlier this week, press reports suggested that close to USD 1.7 million in Ethereum sent to Shibarium had been lost or become ‘unrecoverable.’. Online hope hits offline reality
While assets based on something as ephemeral as a social media trope might be excused from normal investment rules, meme coins can feel the pull of real-world market pressures.
Back in November 2022, DOGE and Bitcoin both erased gains as markets were gripped by US election jitters and the anticipated release of CPI data.
At that point in time, the biggest coin by market cap was trading at USD 18,257, down around 7.3 per cent from the previous two days.
That erased gains made when BTC broke above the USD 21,000 mark just two days before, reaching USD 21,400 at one point on news of US job growth.
Ethereum, the second biggest coin by market cap, fell sharply too, shedding more than 10 per cent of its value in 24 hours.
Both had been trending down since Monday 7th November, but also experienced sudden drops as the US vote count got underway. Early trends suggested the Republicans might be on track to narrowly take control of both the Senate and House of representatives.
As BTC and ETH sank, original meme coin Dogecoin (DOGE), then the eighth biggest cryptocurrency by market cap, also dropped off a cliff. The first meme coin and personal favorite of Twitter (Now X) owner Elon Musk had plunged by more than 12 per cent.
The coin rallied into November when Musk announced his pursuit of Twitter had finally happened. DOGE shot up by 94 per cent in a week, making it November 2022’s best performing digital asset to date.
Things began to change however when American voters headed to the polls in ‘mid-term’ elections that would decide the political make-up of the current US Congress. The outcome was thought to be significant for the crypto market as lawmakers would likely decide how to regulate digital assets in the subsequent 12 months.
As the election count rolled on, the US Bureau of Labor Statistics also planned to release the latest CPI inflation data on Thursday 1oth November. The figures showed how deeply inflation was biting into household spending on essential goods like fuel and clothing.
High inflation would have set Bitcoin up for more losses as investors fleed to safe-havens like the US dollar.
DOGE briefly doubled in value to almost (USD) 15 cents on 31st October. That lifted its total value to about USD 15.8 billion and sending its market cap past established coins like Cardano.
During the week commencing 31st October DOGE saw heavy trading on the major cryptocurrency exchanges. On Coinbase it was the third most traded coin, accounting for over 15 per cent of total trading volume.
As Bitcoin has left a trail of disappointment for most of 2022, crypto traders have naturally followed number two ETH’s trajectory with high hopes. There was concern that a decisive break below the psychologically significant USD 1,000 could trigger margin calls or liquidations of large leveraged bets.
Happily, for most those fears have turned out to be unfounded, though nerves began to fray in June when two crypto lending platforms, Celsius Network and Babel Finance, halted withdrawals due to worries about ‘undue market volatility’.
The real sweating, however, started when crypto hedge fund Three Arrow Capital was unable to beef-up collateral to cover its riskier bets. It had been less than a month since Terra, a USD 40 billion stablecoin project collapsed. Some investors were clearly feeling a sense of deju vu.
Those events coincided with two large-scale capital withdrawals from Ethereum’s blockchain ecosystem that severely diminished its benchmark total value locked (TVL) metric. The unwind happened in two parts. The first occurred across Ethereum's decentralized finance (DeFi) projects in May, when TVL fell by USD 93 billion after the Terra collapse. This month (June 2022) has seen another USD 30 billion in withdrawals.
‘The deleveraging underway on Ethereum (was) observably painful, with characteristics that make it look like a financial crisis in miniature,’ said on-chain analytics platform Glassnode in an analyst note. ‘One only hopes that with the pain comes an opportunity to rid the network of excessive leverage and make space for a less risky rebuild on the other side.’