Bitcoin Bulls Trip on a Frog as Pepe Memecoin Frenzy Signals Market Top
A frog-themed digital token that's only been around for a month may be signaling pain ahead for Bitcoin bulls.
Trading in memecoins — crypto assets that can be inspired by viral images and memes and attract loyal social-media communities but otherwise lack in inherent utility — soared in recent days. Leading the pack was Pepe, a newfangled amphibian-themed token, which sparked frenzied speculation and spawned many copycats ever since its birth in April.
Pepe was obsessively promoted on Twitter before and after its launch, and it peaked at a market value of more than $1.6 billion on May 5 before reversing course and plummeting as much as 70% in following days, according to CoinMarketCap. The ill-fated frog — which, like many memecoins, never traded higher than a fraction of a cent even at its height — took Bitcoin and Ether down with it. Both coins have dropped about 10% since May 5, a notable step-down after four straight months of gains.
Long-time crypto traders have seen this play out before: Memecoin booms typically start during frothy periods, when traders whose wallets have recently gotten fat grow more willing to take on added risk. These speculators typically offload some of their Bitcoin or Ether holdings to invest in memecoins, so a craze can lead to a drawdown in the prices of the two major coins, Kyle Doane, a trader at digital-asset manager Arca, said in an interview.
Once the memecoin frenzy fades, as it inevitably does, most traders lose their funds, and have less to invest back in Bitcoin and Ether, he said.
“At the end of the day it's a lottery ticket,” said Doane, who doesn't trade Pepe. “That type of trading is basically a centralized casino.”
Past memecoin crazes have signaled market tops that have been
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