If Q1 of 2021 was the quarter of meme stocks and short squeezes, Q2 is the quarter of cryptocurrencies. And in particular, altcoins, which many have dubbed “meme coins.” The rise of both meme stocks and meme coins are unprecedented, and therefore, has left many analysts dumbfounded by their new all-time highs. Earlier in the year, I wrote a blog on the rise of meme stocks, such as Gamestop (GME), AMC, Nokia (NOK), etc., and dove into how these stocks (or should I say, “stonks”) were being manipulated by big money, despite retail taking all of the credit. To back this claim, I posted order flow analysis which showed millions of dollars being thrown into GME calls on January 26th, 2021, right before GME’s epic short squeeze. However, when it comes to trading crypto, we don’t have the same type of order flow analysis available. So leaving us to make intelligent guesses of who is really controlling the crypto market. Now, as crypto is finally pulling back (at the time of this article, BTC is currently trading at 34,162, almost 50% down from its all-time high of 65,000 per Bitcoin), which leaves us with 2 major questions – Will crypto ever recover and re-test all-time highs? And, with that being said, do be HODL and/or BTFD? (If you are reading this blog, I most likely do not need to explain what those acronyms stand for… thankfully)!
How Did We Get Here?
The most recent 2021 spike in cryptocurrency trading seems to have multiple catalysts; Tesla, Microstrategy and Square have all disclosed large positions in Bitcoin, causing positive investor sentiment; Elon Musk pumped Dogecoin multiple times on Twitter, giving rise to Altcoin (aka meme coin) interest and volume from retail; and there has been talk that Bitcoin will be coming to hundreds of U.S. banks in 2021, according to the crypto custody firm NYDIG. Additionally, after the meme stock and short squeeze phenomena in Q1, many retail investors were left holding the bag, some incurring huge losses. Inevitably, this, along with the threat of increased taxes and rising interest rates, led to decreased investor confidence in the stock market. However, the rise of the retail trader wasn’t going anywhere, and many, millennials, in particular, were left wondering where they were going to park their money for the next hype play.
Around this same time, we also saw an increase in the hype in NFT (Non-Fungible Token) stocks. Like cryptocurrency, NFT’s run on blockchain technology, which helped fuel the hype in the cryptocurrency space.
After DogeCoin’s enormous rally, fueled by continuous Elon Musk Tweets, we started to see strength in other altcoins; some had promise, such as ADA (Cardano) and DOT (Polkadot), while others were just meme coins that ran in sync with the Dogecoin hype, such as ELON (Dogelon), SHIB (Shiba Inu Coin) and PIKA (PikaCrypto). Additionally, with the widespread use of the app UniSwap, a decentralized exchange that allows you to buy altcoins with Ethereum (ETH) before the coins hit crypto exchanges, the rise of altcoins continued, as investors continued to buy Ethereum (causing Ethereum, a promising blockchain platform that enables smart contracts and DApps, to reach new all-time highs) in order to buy altcoins as soon as they were available on UniSwap. Many investors overnight turned amounts as little as $600 into $20,000 by buying altcoins before they hit exchanges, sparking continued interest as a tidal wave of investor funds continued to buy into the cryptomarket.
How Does Rise of Meme Coins Compare to the Rise in Meme Stonks?
The similarities between the rise of meme coins and the rise of meme stonks are hard to ignore. For one, retail investors are a force behind this rally, however, it’s likely that the real driving force is large cryptocurrency hedge funds. On May 24th, 2021, the third annual Global Crypto Hedge Fund Report, co-authored by Elwood Asset Management, revealed that 31% of crypto hedge funds use decentralized exchanges. 16% of that 31% use Uniswap, 8% use 1inch, and 4% use SushiSwap. This means that although some retail investors had an upper hand of getting into new cryptocurrencies before hitting exchanges, big money was also utilizing the same upper hand – you just needed to know which meme coins big money was buying.
Additionally, as cryptocurrencies continued to gain popularity, they started to be mentioned on WallStBets, the Reddit page highly publicized for incentivizing investors to buy into the GameStop hype. Also, cryptocurrencies started to lead in popularity on Stocktwits, another stock-associated social media website, which contributed to fuel the crypto rally.
However, because of the similarities between the meme stock rally and the meme coin rally, it leads us to wonder if the cryptocurrency market, in particular, the altcoin market, will follow a similar trajectory as the meme stock market. Although never re-testing the lows or highs, GameStop has been ranging between $150 and $200 for quite some time now, AMC has seen some strength lately, but has also not retested the highs, and EXPR, KOSS, NOK have not gotten close to their all-time highs since the end of meme stock rally.
Also, as of late, there have been negative catalysts for the crypto market. On May 12th, 2021, Elon Musk tweeted that Tesla will not be purchasing any more Bitcoin due to the impact Bitcoin mining has on the environment. This caused a notable decline in Bitcoin, the canary of the crypto market. Also, after his Saturday Night Live debut, Dogecoin lost almost 50% of its value overnight before finding support.
Unfortunately, it’s also now being revealed that some meme coins, despite being known to investors as nothing more than a meme coin/hype play, have been revealed as being fraudulent. On May 23rd, 2021, it was revealed that the altcoin “DeFi100 coin” was a scam, and the creators ran away with $32 million from investors. Although there has been talk of regulation in the crypto market for some time, events such as this could lead to increased talks of regulation, therefore adding downside pressure to the crypto market as a whole.
Do We Buy This Dip or Diamond Hands Our Current Holdings?
This is the million-dollar question (literally)- do we buy this dip on crypto (Now, as the writing of this article has progressed, we’ve seen some strength in BTC, which is currently trading just under $38,000 per coin), or has crypto had its rally for now, and will it follow the same trajectory as meme stocks (aka, bouncing around in no man’s land until their “cool” again)? The answer isn’t simple, but there are a few facts that could lead us in the right direction:
- Crypto funds managed almost $3.8 billion in 2020, compared to $2 billion in 2019.
- De-Fi-specific tokens are on the rise. In particular, LINK was included in 30% of hedge fund investments, DOT was included in 28% and AAVE was included in 27%.
- Crypto hedge funds returned 128% in 2020, compared to 30% in 2019, which is a 99% increase YoY.
Additionally, the crypto market trades on 3 very important factors: liquidity, hype, and technical analysis. As long as there are believers in cryptocurrencies as a whole, there should be an opportunity, especially as space continues to evolve. Yes, there are risks, and the volatility is immense, but crypto traders like the high-risk high-reward atmosphere in the crypto market. My take; I’m going to BTFD but on quality crypto names, do my research, and when the next hype play arises, cash in once you hit 1000% (LOL). Crypto is not dead.
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