The surge in meme coins has prompted plenty of 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 many speculators and traders attracted to these assets. Most conservative investors tend to view these tokens as not worth investing in. In many respects, I find myself in this camp.
That said, there’s no denying the sort of impact Bitcoin’s (BTC-USD) recent rise has had on all digital assets. Meme tokens are surging, and the meme mania we saw in 2021 appears to be back in full force.
For those who may be looking for signs that this mania can continue, let’s dive into what signs exist that suggest it is as rampant as many suggest right now.
Capital Inflows Into ETFs Are Soaring
In the recent crypto frenzy, an astounding $520 million flooded into BlackRock’s (NYSE:BLK) Bitcoin ETF in one day, fueling the digital currency’s surge past $72,000. The influx into the fund underscores the significant role ETFs play in Bitcoin’s soaring rally, attracting a diverse group of investors. The influx of capital broadened access to Bitcoin, aligning with predictions and providing 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. Around 20% of investment advisers 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 vigorous activity caused outages at crypto exchange Coinbase (NASDAQ:COIN) and signaled just how impressive institutional investor interest is in digital assets.
Bitcoin has surged over 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 contributed significantly to its 2023 surge. In tandem with Bitcoin’s rally, the $6.5 billion IBIT has witnessed 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. These inflows underscore the increasing demand for spot Bitcoin ETFs, emphasizing the appeal of trading assets through ETFs and the longstanding investor interest in Bitcoin funds.
It’s unclear how much of the interest around higher-risk and more speculative meme coins is being driven by institutional investors. But with more capital flowing into this sector and greater liquidity seen on various exchanges, it’s a broadly bullish sign mainstream investors are catching onto the crypto trade. For meme coin traders and speculators, that’s a good thing.
Simple Price Appreciation From the Top Down
Bitcoin has continued to surge to record highs ahead of its upcoming halving event, surging above $72,000 for the first time this week. I would argue this incredible momentum seen from the world’s largest cryptocurrency is driving top-down interest for all cryptocurrencies right now.
As Bitcoin and other mega-cap cryptos continue to surge, investor interest in other high-growth digital assets continues to grow. We’re seeing pretty broad-based positive moves in this space, suggestive of 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 will want to move out on the risk spectrum to the corner of the market that meme coins occupy. Indeed, these assets are best viewed as trading and speculative vehicles. Accordingly, the ties between this sort of top-down behavior may be weak, 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 driving these meme coins higher right now. It’s party on, and meme coin investors are partying the hardest right now.
Leveraged Short Liquidations
Some of the recent volatility we’ve seen across the board in the crypto sector can certainly be tied to buying and selling activity in this space. Indeed, that’s what moves most markets, though leveraged positions play a role in shaping how quickly a given asset moves (its volatility). In the crypto world, leverage is rampant, and it’s partly what makes these assets so darn volatile over short timeframes.
Recent data from Coinglass shows just how rampant this leverage has been across various digital assets. Short liquidations have exceeded long liquidations during this recent rally, meaning short-sellers are seeing their leveraged bets blow up. This leads to higher prices, spurring further short liquidations and an upward spiral in prices.
To a large degree, these sorts of liquidations are a key driver many investors aren’t necessarily focused on. Yes, there’s a flood of capital coming into this sector. But when traders are levering up their positions up to 100x, near-term moves can be significant, especially when these bets unwind.
Bottom Line on Meme Coins
I’m remaining on the sidelines for now when it comes to meme coins. I’m going to acknowledge that meme coin mania is alive and well, and wish all speculators and traders well. But this just isn’t an asset class for investors who value capital preservation. So, take out the popcorn and enjoy the action. This year is shaping up to be an interesting one, that’s for sure.
On 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 writer, subject to the InvestorPlace.com Publishing Guidelines.
