The market performance of memecoins like Dogecoin (DOGE), Shiba Inu (SHIB), and Pepe (PEPE) on May 6 indicates a deviation from the upward momentum that was seen in the sector last week.
According to CoinGecko data, the total market capitalization of memecoins has fallen by 2.7% to $55.48 billion in the past 24 hours. The memecoin Bonk (BONK) experienced the largest decline, losing 6% of its market value. Floki (FLOKI) followed with a 3.3% loss, and Memecoin (MEME) came in third with a 3% decline.
The leading meme token, DOGE, saw a price decline of 2.1% on the day, bringing its market cap to $22.74 billion. Notably, DOGE still holds nearly 41% of the total market share of the memecoin sector.
SHIB, DOGE’s rival, also experienced a correction on May 6, with a 2.4% decrease in price, bringing its market cap to $14.29 billion, solidifying its position as the second most popular memecoin.
Several factors contribute to the decline in memecoins today. One factor is the weak market structure of altcoins. Historically, the bull market is driven by a rally in altcoins. However, the total market cap of all cryptocurrencies excluding Bitcoin (BTC) and Ether (ETH), known as TOTAL3, has experienced a pullback after its rally that began in October 2023. This pullback has led to the formation of a descending parallel channel on the weekly chart.
Traders took profits as the relative strength index (RSI) on the weekly chart became overbought during the Solana-based memecoin frenzy. An RSI reading above 70 indicates that altcoins are becoming overvalued and are likely to undergo a trend reversal or corrective pullback.
Altcoins, including major memecoins, are still in an extended downtrend, as confirmed by TOTAL3’s movement inside the descending parallel channel. The RSI value has decreased from 89 to 62 over the past seven weeks, indicating that market conditions still favor a downward trend. If TOTAL3 fails to rise above the upper boundary of the declining channel at $660 billion, altcoins, including memecoins, could continue to correct in the coming weeks.
Additionally, memecoin trading volumes have been decreasing since early March. Data from Dune shows that memecoin transaction flows across all blockchains have collectively dropped by 81% from its recent peak in March. This suggests a decline in traders’ interest or confidence in the sector.
Looking at individual memecoins, DOGE’s trading volume has dropped by approximately 50% between March 7 and May 6. Similarly, SHIB’s and PEPE’s trading volumes have plummeted by 88% and 51% respectively over the same period.
Furthermore, the decreasing possibility of interest cuts by the U.S. Federal Reserve in 2024, as indicated in the May 1 FOMC statement, has boosted risk-off sentiment in the crypto market. This sentiment particularly affects memecoins, which have been among the most profitable assets in 2024. As the U.S. economy strengthens, traders are more attracted to safe yield assets like U.S. Treasuries, reducing the appeal of riskier investments like memecoins. Investors may be taking profits from memecoins in the first quarter of 2024 to invest in other sectors of the crypto ecosystem.
It’s important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and make informed decisions when it comes to investments and trading moves.