As cryptocurrencies bounced back from the June lows this year, meme coins have outperformed bitcoin and ether for the past few days, prompting some investors to ask if the risk-on plays are back in favor.
Dogecoin
DOGEUSD,
jumped 16.3% and another dog-themed token Shiba Inu
SHIBUSD,
advanced 32.7% during the past seven days, though the coins are still down more than 50% each year-to-date, according to CoinDesk data. In comparison, bitcoin
BTCUSD,
increased 2.7% and ether
ETHUSD,
rose 9% for the seven-day stretch.
Part of Dogecoin’s rally could 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 surge of meme coins also coincided with the bounce of some meme stocks, such as Bed Bath and Beyond
BBBY,
which jumped 98% over the past five days. “It’s under the backdrop of kind of a technical August that’s almost susceptible to this kind of retail biplot having an outsized price impact,” Farrell said.
As U.S. inflation slowed down in July, investors who have shunned risks earlier this year started to come back to the field. Meanwhile, some corporate buyback programs have been revived, lifting stock prices, Farrell added.
What’s more, August is “normally a very slow summer month. There are not a lot of sellers left that not already have done so during the first half of the year,” Farrell said. “And that ends up with the ability 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, market strategist at LMAX, echoed the point. The rise of dog-themed tokens are driven by a combination of factors, including the stabilization in bitcoin and ether, an uptick in global market sentiment and enthusiasm around the upcoming Ethereum upgrade, according to Kruger.
“Retail investors are looking at all of these positive signs and using them as an opportunity to establish exposure in higher risk crypto assets that they hope will give them a bigger bang for their buck,” Kruger said.
However, both Farrell and Kruger warned that investors should remain cautious. The macroenvironment remains uncertain for the past few months and will likely dominate crypto prices, Farrell noted, pointing to the next Federal Reserve policy meeting in September and the U.S. midterm elections afterward.
Any “legitimate rally” in crypto will need to be accompanied, if not led by bitcoin and ether, Kruger said. “At the moment, we aren’t getting that positive confirmation from bitcoin and ether, which suggests these retail traders should proceed with caution,” Kruger said.
Hear from Mike Novogratz at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The Galaxy Digital CEO has ideas about navigating the crypto winter.
