According to CryptoPotato, since its inception in 2013, the meme coin market has experienced substantial growth, reaching a total market capitalization of $60 billion by June 2024. In March alone, this asset class attracted an impressive $13 billion in spot trading volumes on exchanges, surpassing major cryptocurrencies such as Ethereum and Solana. However, this sector is not without its risks.
CoinShares' recent report highlights a significant risk of market manipulation and liquidity challenges in the meme coin market due to the heavy concentration of assets among a few holders. Larger holders, often referred to as 'whales', can significantly influence the token's price by making large trades, leading to volatility. If a small number of addresses hold most of the tokens, liquidity issues can arise, especially if these addresses also control the liquidity provision on decentralized exchanges.
The report also points out a high Gini coefficient of around 0.8 for these meme coins, indicating a significant centralization of token holdings. This metric assesses the distribution of tokens among different addresses. Such centralization poses risks like potential market manipulation, liquidity challenges, and increased investor caution, all of which need careful consideration when evaluating these 'joke' tokens.
While older meme coins like Dogecoin and Shiba Inu are losing influence, newer ones such as PEPE and a host of new Solana meme coins are gaining traction, accounting for over 50% of the trading volume. This shift reflects a recent investor preference towards newer meme coins, driven by factors such as growing communities, blockchain ecosystems, and the potential for higher returns. However, the liquidity and longer track record of established meme coins remain significant.
The report also notes a high futures open interest, reflecting the massive market footprint of these coins and suggesting increased speculative trading. For example, Dogecoin's open interest recently hit a record of $1.8 billion, while that of PEPE surged nearly 50% to $850 million in May. The rise in open interest, which has now exceeded $3 billion, points to increased price volatility and indicates that investors are increasingly using futures positions to manage their exposure to meme coins.