Meme Coins Crash After Bitcoin Falls, But There's a Likelihood They Will Rebound

Most meme coins plunged this week as many retail traders continued to sell in panic as the outlook in crypto worsened.

The prices of most meme coins have crashed this week as many retail traders continue to sell in panic due to the worsening outlook in the crypto market.

According to data from CoinGecko on Dec. 13, the market cap of all meme coins plunged by 12% to $113 billion.

As most meme coins plunged, the sell-off was more pronounced among smaller tokens. For instance, Brett (BRETT), the biggest meme coin in the Base Blockchain, fell by 11.2% on Thursday and by 23% in the last seven days.

Moreover, Peanut the Squirrel (PNUT), a Solana meme coin that went viral recently, has plunged by 40% in the last seven days. In another development, Popcat (POPCAT), Turbo, and Mog Coin were among the worst-performing cryptocurrencies.

On the other hand, the market cap of all Solana meme coins dropped by 15% to $15.5 billion.

The crash in meme coins comes in response to the ongoing performance of Bitcoin (BTC). As we reported earlier this week, Bitcoin plunged below $100,000 after briefly soaring to a record high of $108,200.

Bitcoin has dropped due to profit-taking and jitters over the hawkish Federal Reserve, which, in its last meeting of the year, warned that it will deliver just two cuts in 2024 amid concerns about inflation.

Meme coins crashed after Bitcoin fell

Meme coins always drop when Bitcoin slips. However, their retreat is usually more severe because most of them are held by retail investors riding the bullish wave.

This is unlike Bitcoin, which has huge institutional investors such as MicroStrategy, Marathon Digital, and Tesla, among others. Bitcoin ETFs also have over $115 billion in assets. Historically, institutional investors have a longer investment horizon than retail traders.

A good example of this selling is in on-chain metrics. According to Nansen, the number of smart money investors in Peanut the Squirrel has dropped to just 35 from last month’s high of almost 100.

The same trend is also happening in Brett, where the number of smart money holders and their balances have dropped in the past few weeks.

At the moment, Brett has about 40 smart money holders, while their balances have fallen to their lowest level in months.

Will meme coins rebound?

There is a likelihood that Bitcoins and these meme coins will bounce back for three reasons.

First, Bitcoin is still in an uptrend, with this retreat being a breather. Technicals suggest that the Bitcoin price will peak at around $122,000 in this bullish cycle.

It is not uncommon for Bitcoin to retreat after hitting a key resistance. For example, it went through a prolonged consolidation when it rose to an all-time high in March.

Second, historically Bitcoin – and altcoins – do well during the first quarter of the year. Data by CoinGlass shows that the average Bitcoin return in the Q1 is 56%.

This makes it the second-best quarter after the fourth quarter, meaning that there are odds that they will bounce back in Q1.

Third, financial assets often overreact when there is a major event and then moderate as traders adjust to the new normal.

A good example of this was in March 2020, when stocks and crypto plunged after COVID was declared an emergency. They then bounced back and reached an all-time high.