Are traders shifting their focus to fundamentals?

Memecoins’ dominance in the altcoin market has declined significantly since April, with analysts suggesting a shift from speculative trading to a focus on fundamentals.

Despite this trend, memecoin liquid assets it has doubled since the beginning of the year, reaching an all-time high of $128 million in early June. This surge in liquidity, even amid declining dominance, indicates a complex shift in market sentiment.

Data from on-chain analytics firm CryptoQuant shows that memecoins in the altcoin market are facing a steady decline. Ki Young Ju, founder and CEO of CryptoQuant, pointed out X (formerly Twitter) the marked decrease in memecoin dominance from September 2022 to May 2024.

Initially, there was a peak in November 2022, reaching around 0.075, followed by a steady decline that stabilized around 0.045 in early 2023. During 2023, the ratio showed minor fluctuations but generally had a trending downward, averaging around 0.04 in early 2024.

A sharp decline was observed starting in March 2024, with the dominance ratio falling below 0.03 by May 2024. Analysts suggest that this change reflects a transition from speculative trading to a focus on fundamentals, similar to trends seen in the previous years.

Memecoin liquidity and market performance

In contrast, the liquidity of the memecoin market has increased, with tokens such as Dogwifhat (WIF), Memecoin (MEME), and Book of Meme (BOME) experiencing liquidity growth ranging from 200% to 4000% in native units.

The average price growth of memecoins in the first quarter of 2024 was 1,313%, significantly exceeding the 286% growth in the real world assets (RWA) sector, second at CoinGecko.

Meme token with 1% market depth. Source: Kaiko

Kaiko’s additional 1% market depth metric highlights this surge, with memecoin market liquidity reaching an all-time high of $128 million in early June.

The recent sharp correction in memecoin prices has led to significant selling, reflecting the collapse in market sentiment. The widest cryptocurrency The market mirrored this trend, with the overall market capitalization falling below $2.4 trillion.

The memecoin market capitalization also fell to $49.9 billion from highs of over $68 billion at the beginning of the year. Despite these corrections, 2024 saw noteworthy events such as the Solana(SOL) memecoin frenzy, driven by Bitcoin approval (Bitcoin) spot exchange-traded funds (ETFs) and increased institutional interest. Positive sentiment cues have led to surges in memecoins, but low volumes or adverse macroeconomic factors have triggered investor withdrawals from these high-risk assets.

Analyst insights into memecoin trends

Altcoin crypto analyst Sherpa recently shared his thoughts on X regarding the ongoing memecoin super cycle. He reflected on the historical models of memecoins such as Dogecoin (DOGE), which have traditionally seen explosive growth followed by significant retracements, and then repeat the cycle.

In the past, the market would cycle through major coins, mid-caps, and then memes, often signaling the end of a cycle. However, Sherpa believes that the situation will change in 2024. Unlike previous cycles, memecoins have now become the leading sector in cryptocurrencydarkening also strong technology projects.

Sherpa recognizes that memes will always have a place in the market, with at least one memecoin consistently showing significant gains. However, he points out that in 2024 the entire memecoin sector has outperformed other sectors for long periods.

Despite their popularity, Sherpa also highlighted the risks associated with memecoins, including the high potential for scams and internal manipulation.

These factors could adversely impact market dynamics. Nonetheless, he supports the inclusion of memecoins in diversified investment portfolios.

While memecoins’ dominance of the altcoin market is waning, the industry’s liquidity and popularity remain strong, driven by both retail and institutional interest.

This trend suggests nuanced market behavior where fundamentals and speculative trading coexist, shaping the future cryptocurrency investment landscape.

Disclaimer: The content of this site should not be considered investment advice. Investing is speculative. When you invest, your capital is at risk.

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