coindesk.com
The meme coin sector rose by 12% on Tuesday, outperforming crypto majors, while the CoinDesk 20 Index is up by 2.3% in the same period.
Meme coins have historically performed well when $BTC, $ETH and SOL are trading in a range near local highs.
Lower liquidity trading pairs mean that meme coins experience exaggerated peaks and troughs compared to crypto majors.
The $53 billion meme coin sector rose by more than 12% on Tuesday with the likes of pepe (PEPE) and dogwifhat {{$WIF}} surging by 22% and 25% respectively, data from CoinGecko shows.
The rally comes after bitcoin ($BTC) recovered to a one-month high of $65,000 before retreating to $63,000. The continued strong performance of meme coins suggests that traders are taking profits in higher market cap assets like $BTC and $ETH and diversifying those profits to more speculative bets.
The CoinDesk 20 Index (CD20), which measures the performance of large-cap tokens, has been up by 2.3% over the past 24 hours.
Several meme coins based on American politics have been issued after presidential candidate Donald Trump was injured from a shooting at a rally in Pennsylvania on Saturday. The likes of America Coin (USA) and Super Trump (STRUMP) are up by 204% and 43% since the shooting.
Due to varying levels of liquidity, meme coins historically perform well during periods where $BTC and $ETH are rangebound near local highs and perform poorly when the wider market is tumbling. Dogwifhat, for example, rose by more than 60% in May, while $BTC traded between $66,000 and $69,000.
$WIF then lost 60% of its value over the course of the subsequent 30 days following a market plunge that saw $BTC fall by 21% during the same time frame.
$BTC's current market depth - a measure of liquidity - on Binance is between $14.8 million and $11.2 million, within 2% of the current level. However, $WIF's market depth is between just $1.4 million and $1 million, meaning that a cascade of liquidations and market orders has the potential to shift meme coins like $WIF much further than larger tokens such as $BTC and $ETH.