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 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.
