Crypto Trends 2024: 3 Signs Meme Coin Mania Is Back

The boom in meme coins has provoked much debate in both crypto circles as well as among more conservative investors. Indeed, the unique appeal these tokens have for investors looking for high-risk, high-reward bets has attracted many speculators and traders to these assets. Most conservative investors tend to consider these tokens not worth investing in. In many ways I find myself in this camp.

That said, there’s no denying the kind of impact Bitcoin’s (BTC-USD) recent rise has had on all digital assets. Meme tokens are on the rise, and the meme mania we saw in 2021 seems to be back in full force.

For those who may be looking for signs that this mania may continue, let’s dive into what signs exist that suggest it is as rampant as many now suggest.

Capital inflows into ETFs are rising

In the recent crypto frenzy, a staggering $520 million poured into BlackRock’s (NYSE:BLK) Bitcoin ETF in one day, fueling the digital currency’s surge past $72,000. The inflows into the fund underscore the important role ETFs are playing in Bitcoin’s upward rally, attracting a diverse group of investors. The influx of capital widened access to Bitcoin, in line with predictions and provided new investment opportunities for various market players.

Stephane Ouellette, CEO of FRNT Financial (OTCMKTS:FRFLF), noted the significant impact of BTC ETFs on the rally. About 20% of investment advisers have had approval to include the product, a process expected to unfold over a year. Now sitting at $69,000, it took about five days for the token to reach its two-year peak and close the gap between its all-time high. The strong activity has disrupted crypto exchange Coinbase (NASDAQ:COIN) and indicated how impressive institutional investors’ interest in digital assets is.

Bitcoin is up more than 55% year-to-date, outperforming other assets even after its remarkable rise last year. According to JPMorgan (NYSE:JPM) strategists, including Kenneth Worthington, the approval of new funds significantly contributed to its 2023 surge. In tandem with Bitcoin’s rally, the $6.5 billion IBIT has seen 32 consecutive days of inflows.

At the same time, Fidelity’s FBTC has also seen consistent daily inflows since its launch, accumulating $4.48 billion in net inflows overall. This inflow highlights the increasing demand for spot Bitcoin ETFs, highlighting the appeal of trading assets through ETFs and the long-standing investor interest in Bitcoin funds.

It is unclear how much of the interest surrounding higher-risk and more speculative meme coins is driven by institutional investors. But with more capital flowing into this sector and greater liquidity seen on various exchanges, it’s a generally bullish sign that mainstream investors are catching on to the crypto trade. For meme coin traders and speculators, this is a good thing.

Simple top-down pricing

Bitcoin continued to climb to record highs ahead of its upcoming halving event, rising above $72,000 for the first time this week. I would argue that this incredible momentum seen from the world’s largest cryptocurrency is driving top-down interest in all cryptocurrencies right now.

As Bitcoin and other mega-cap cryptos continue to rise, investor interest in other high-growth digital assets continues to grow. We are seeing fairly broad-based positive moves in this space, suggesting the idea that capital is flowing to all corners of the crypto market. For meme coin investors, this flood of interest has certainly been a good thing.

Now, not all investors on the risk spectrum will want to move out into the corner of the market that meme coins occupy. Indeed, these assets are best thought of as trading and speculative vehicles. Consequently, the links between these types of top-down behavior can be tenuous at best.

But I think it’s true that there’s something to the idea that “crypto go up” reflects some of the broad-based sentiment that’s currently driving these meme coins higher. It’s party time, and meme coin investors are having the loudest party right now.

Leveraged short liquidations

Some of the recent volatility we’ve seen across the board in the crypto sector can certainly be linked to buying and selling activity in this space. Indeed, this is what moves most markets, although leverage positions play a role in shaping how quickly a given asset moves (its volatility). In the crypto world, leverage is rampant, and that’s partly what makes these assets so wildly volatile over short time frames.

Recent data from Coinglass shows how large this leverage has been on various digital assets. Short liquidations have exceeded long liquidations during this recent rally, meaning short sellers are seeing their leveraged bets inflated. This leads to higher prices, prompting further short liquidations and an upward spiral in prices.

To a large extent, these types of liquidations are a key driver that many investors are not necessarily focused on. Yes, there is a flood of capital coming into this sector. But when traders increase their positions up to 100x, moves can be significant in the short term, especially when these bets unwind.

Bottom Line on Meme Coins

I’m staying on the sidelines when it comes to meme coins for now. I’m going to admit that meme coin mania is alive and well, and wish all speculators and traders the best of luck. But it’s just not an asset class for investors who value capital preservation. So, get out the popcorn and enjoy the action. This year is shaping up to be an interesting one, that’s for sure.

As of the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines.