finbold.com
Meme coins surged for impressive gains year-to-date, dominating most of the cryptocurrency market’s top performances in 2024. However, the results cooled down in the past week while cryptocurrencies faced a major correction, threatening further losses.
Over $230 billion was wiped in a day from March 18 to March 19. The overall sentiment drastically changed from ultra-bullish to slightly bearish, which can put an end to the meme coin’s hype.
In this context, Finbold selected two cryptocurrencies to avoid trading next week, among the previously most traded speculative tokens.
Pepe (PEPE)
Pepe (PEPE) has seen over 500% gains in the last 30 days, from $0.000000115 on February 22.
Now, PEPE loses momentum, back to a 55 Relative Strength Index (RSI), similar to one month ago. A bearish divergence appears to be surging in the daily chart, as the price remains high despite the strength loss.
Currently, PEPE has a market cap above $3 billion and no solid use cases besides price speculation and being a meme. There is price support at $0.000005927 but no other meaningful support between that and $0.000000115, for a 98% drop.
Dogwifhat (WIF)
Second, Dogwifhat (WIF) had an even greater performance, attracting retail investors to the Solana (SOL) blockchain. WIF is up nearly 600% in 30 days while testing support at around $2.0 per token.
Like PEPE, dogwifhat investors may finally decide to realize part of their massive profits, which could create a liquidity shock. Losing the current region would potentially drive the price to its month-over-month lows at $0.29, for an 86% crash.
Why investors should avoid trading meme coins?
The most dangerous aspect of trading meme coins is that, without further use cases, prices can engage in a death spiral once the hype goes away. Notably, investors usually deploy capital to these tokens in the expectation of selling for higher prices for the next buyer.
This behavior is described as “The Greater Fool Theory” by finance experts.
“The Greater Fool Theory is the idea that, during a market bubble, one can make money by buying overvalued assets and selling them for a profit later, because it will always be possible to find someone who is willing to pay a higher price. An investor who subscribes to the Greater Fool Theory will buy potentially overvalued assets without any regard for their fundamental value. This speculative approach is predicated on the belief that you can make money by gambling on future asset prices and that you will always be able to find a “greater fool” who will be willing to pay more than you did. Unfortunately, when the bubble eventually bursts (which it always does), there is a large sell-off that causes a rapid decline in the asset values. During the sell-off, you can lose a great deal of money if you are the one left holding the asset and cannot find a buyer.”
– Harford Funds blog post: “The Greater Fool Theory: What Is It?”
This purely speculative demand works well while the market is bullish and prices can go up quickly, as observed. Nevertheless, sentiment shifts erase the demand, and investors can initiate a run, panic-selling the coins to avoid losses. In these events, the price drop can be faster than the previous pump, with low chances of recovery.
Yet, cryptocurrencies are unpredictable, and further support from celebrities or other news could fuel more greed and a rally continuation. On that note, investors should avoid trading PEPE and WIF in a zone of possible huge retracements, while higher prices are still possible.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.