Can so-called ‘meme coins such as Safemoon SAFEMOON/USD, Doge DOGE/USD and Shiba Inu SHIB/USD predict a crypto crash? Yes, yes, they can. They already have, and they will likely do so again.
Let’s go back to the start of this crypto bull run in May 2020. Hopefully, you all understand the catalyst for this bull run. If you do, you can skip this paragraph. It was the same as every bull run since the creation of Bitcoin BTC/USD. A halving. Roughly every 4 years, the block reward for mining Bitcoin is reduced by half. As a result, the amount of Bitcoin created every day is reduced by half, which leads to increased scarcity. We know that there’s a total cap of 21 million Bitcoins that can ever be produced. Over 18 million of those coins already exist and, due to halving events, it will take around 100 years to mine the last 3 million coins.
Over half of Bitcoin wallets have been created since the last halving on May 11, 2020. As a result, most crypto investors likely started invested during this bull run. This is a problem because over half of the investors require education to understand the market cycles of crypto. As a result, they do not have first-hand experience of some of the intricacies of crypto. If they do not educate themselves, then they could be in for a rude awakening.
A friend of mine invested heavily in XRP XRP/USD in 2017 and was doing extremely well for himself. One day they had to take a flight; they were only in the air for around 2 hours, but over 70% of their net worth had evaporated by their landing. Four years later, the price of XRP is still less than half of the value it was when he boarded that plane. That journey was the start of the next crypto winter. Whilst we know that Bitcoin has risen to over double what it was that day, many coins have never returned.
So, what does this have to do with Safemoon, Doge and Shiba Inu? Well, a few things help us predict the top of a crypto bull run based on history. For example, we can look for a blow-off top, the price relative to the stock to flow model, the time since the last halving, the amount of Bitcoin being moved onto exchanges… numerous factors come into play. However, one of the most common aspects of the top of any bull run is ‘mania’.
Let’s look at the top coins at the peak of the bull run in 2017. The only coins in the top 10 to remain there are Bitcoin, Ethereum ETH/USD , Cardano ADA/USD and XRP. Unfortunately, many projects in the top 20 (including XRP) have never reached their all-time highs again. Further, many of them have performed poorly since the May 19, 2021, drawdown from the local Bitcoin high.
It is important to remember, crypto is not a perpetual rigged casino. Just because a project exploded in value doesn’t mean it has the staying power to retain those levels (or even regain them after a crash). I see way too many people, myself included at times, look to previous all-time highs as a marker that it must return to one day. FOMO tends to be strongest when projects moon or settle into an accumulation pattern after a significant drop or exploit. Countless posts on Reddit talk of people buying into projects like Pancakebunny BUNNY/USD, Venus XVS/USD, Poly POLY/USD after an exploit, assuming it must reach a new all-time high without understanding how an attack affected the tokenomics. The foundations of a project matter. They matter objectively and not solely in an echo chamber filled with confirmation bias and subjective opinions. When a project’s market cap rises significantly over a short period without any fundamental catalysts, it should be cause for concern. Simply because a token has become popular does not mean it is worth its current value. In my last article, I compared the current climate to the dot-com bubble. The main reason for the crash in the 90s wasn’t people investing too heavily in internet companies; it was people investing too heavily in the hype and not looking enough at the fundamentals. Previous Bitcoin bull runs have seen up to a 94% drawdown. If you could see this coming, wouldn’t you want to be prepared?
The local high for Bitcoin in 2021 occurred on May 19. However, one of the main arguments for this not being the end of the bull run was that we did not have a ‘blow-off top’ as we have done at the end of every other run. However, this is not strictly true. Looking at the Year-to-Date charts for Safemoon, Doge and Shiba Inu, we can see a blow-off top for each. Safemoon peaked on April 20, Dogecoin on May 7, Shiba Inu on May 11
This mania then expanded further than just meme coins. Other top altcoins also experienced a similar blow-off top. Cardano and Polygon MATIC/USD rose 96% and 272%, respectively, in 11 days. Ethereum exploded until May 12, then flash-crashed by 20% in 24 hours alongside Bitcoin trading sideways. This drop scared many investors into taking the massive profits they had accumulated since January. The rest is history as exchanges liquidated overleveraged traders, and a substantial long squeeze played out, dropping the price of Bitcoin to $30,000 on May 19.
Another factor that we look at in analyzing crypto cycles is the fear and greed index. On May 19, it was showing extreme greed. Today we are back to extreme greed, with Bitcoin back to the high $40,000s. Based on history. If we see a move in meme coins exploding past recent all-time highs, I would be very wary of a similar drawdown that could cement the end of the bull run and the start of a three-year crypto winter until the next halving. I am not saying that Doge, Safemoon, or Shiba Inu are baseless projects without any strong fundamentals. I am saying that these projects have risen due to social media hype and community momentum rather than their fundamentals. The fundamentals of the project are only discussed in hindsight on subreddits for the most part. Doge is the epitome of a hype play, and without Elon Musk, it would unlikely be in the place it is today.
Crypto can be an investment, a trade, a gamble or all three. So make sure you know which it is for you when you part with your ‘dirty fiat’.