Have dog-themed meme tokens had their day or are they just playing dead?
A recent shakeout in meme tokens, a sector best known by the Shiba Inu-themed dogecoin (DOGE), indicates that retail investors are exiting their positions in cryptocurrencies as recent market sell-offs have spooked many crypto newcomers.
But analysts and traders are divided on whether retail interest in meme tokens will return anytime soon to this community-driven, less serious part of the crypto market.
“The [meme token] market becomes oversaturated with pointless meme coins,” Arcane Research analyst Vetle Lunde said.
Though there were countless other canine-themed coins listed such as dogelon mars (ELON), and doggy (DOGGY), the area wasn’t restricted to just dogecoin wannabes. There was also CUMROCKET (CUMMIES), a token that powers a non-fungible token marketplace for the adult entertainment industry and loser coin (LOWB), a token representing a self-deprecating culture in China.
“I think it highlights the aggressive nature of the risk-on flow that was prevalent during that period,” Denis Vinokourov, head of research at Synergia Capital, said. “Fundamentals per se did not matter or mattered less to a degree, and in the end, it became a very crowded momentum trade.”
That momentum appears to have dissipated. Data compiled by CoinDesk research shows that dogecoin was already in the red during May, while smaller meme tokens were posting some gains. A month later, however, almost all of the 10 meme tokens from CoinMarketCap turned tail and followed the pack leader in posting negative returns in June.
Doge’s price is down by 35.3% in July so far, according to TradingView and FTX, indicating that the No. 1 meme token by market capitalization is likely to close the month at a loss again.
An oversaturated meme market
The once white-hot sector in crypto has faced unprecedented selling pressure since the broader market sell-off in May, partly due to “a reduced presence of new retail investors,” according to Lunde.
In Asia, where the crypto market is dominated by retail investors, the recent crackdown in China on crypto trading and bitcoin mining also has hurt the meme tokens.
China’s crackdown “is making it harder for people to invest new money into the market, and rumors of further regulations on centralized exchanges have raised concerns about further investing,” Rachel Lin, CEO of decentralized derivatives exchange SynFutures, said. “Many of the meme coin traders in Asia are also miners, so they are preoccupied with handling the crackdown and recovering their losses.”
Meme token craze “was over a while ago,” Annabelle Huang, a partner at Hong Kong-based Amber Group, said. “Then it’s all about the mining ban and the ‘great migration’ [in China] as I call it.”
Speculative traders eye next big thing
For some analysts, it is clear that those speculative traders, who once loved the high returns from the meme tokens, have moved on to the next hot project, evidenced by the rise of Axie Infinity in recent weeks.
“This summer is so far turning out to be the summer of crypto game projects,” Arcane’s Lunde said, warning that the gaming sector, potentially, is also facing or will face an over-exuberant market, similar to what happened with meme tokens.
At their peak reached just last week, AXS tokens had a total market capitalization of more than $1 billion, compared with French video-game company Ubisoft’s market value at around $7 billion.
“I think it is safe to say the bulls might be a bit too optimistic at the moment,” Lunde said.
At press time, AXS was trading at around $15.4, according to data from Messari, down by 46.3% from its all-time high of $28.66 on July 15.
Synergia Capital's Vinokourov, citing unwinding bitcoin carry trades with the one-month bitcoin futures contract moving into backwardation, said that more cash is sitting on the sidelines at the moment rather than being put into crypto.
The cash-and-carry trade – meaning shorting futures and taking a long position in an asset to profit from a tightening of the spread between the futures' price and the spot price – has become less attractive to traders as the difference between the price of the futures contract and the spot price on an annualized time frame has fallen significantly recently.
The crypto market needs a much stronger “risk-on” mood before meme tokens can, if at all, make another comeback, he said.
Legacy (and some hopes) remain
But not all are so pessimistic about where meme tokens are heading.
“Beyond speculation, these meme coins have actually seen great traction in the wider crypto ecosystem, particularly when used as a tip for content on social media,” Jay Hao, CEO of crypto exchange OKEx, told CoinDesk via a spokesperson. “It is especially interesting to see millennials get involved with these meme coins.”
Hao said if the meme tokens’ creators and communities can help build a better infrastructure, the tokens have the potential to turn into “robust utility tokens” that are beyond the jokes or the culture they represent.
Despite the disappointing prices, the dogecoin community, for example, remains active: A new fee structure for dogecoin was proposed at the end of May by its core developers to reduce overall transaction costs. Last week, eToro, an exchange that mainly caters to “social” or beginner traders, reported that dogecoin became the fifth-most held crypto on the exchange after having been listed less than two months.
And chief dogecoin booster Musk has posted several tweets regarding the meme token this month, though his ability to make the Shiba Inu-represented token jump isn’t what it once was.
OKEx’s Hao said that the limited access to crypto investments poses a major challenge for crypto newbies to continue to invest in the market after first being attracted by the meme tokens.
“It would be an easier first step for them to use traditional channels such as [exchange-traded funds], or if banks operated as custodians,” he said. “Then we would have retail investors ... continue to invest in up-and-coming [alternative tokens] and in [decentralized finance] – with an understanding that gains may no longer happen overnight and that profits will come by playing the long game.”
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