Bitcoin Gains Are Pushing Traders Into Meme Coins, Says Bitwise Exec

Why exactly are meme coins like Dogecoin (DOGE), Shiba Inu (SHIB), and Pepe (PEPE) pumping all of a sudden? Bitwise CIO Matt Hougan says there’s a method to the madness.

“The primary driver of alt season is a classic ‘wealth effect,’" wrote Hougan on Twitter Friday. “Crypto natives make money in Bitcoin, feel rich, and then look for more speculative assets to invest in.”

Bitcoin (BTC), the long-reigning king of the crypto market, is up 54% year to date, largely thanks to inflows and media hype surrounding new Bitcoin spot ETFs launched by BlackRock, Fidelity, and others—including Bitwise itself. The cryptocurrency even tapped a new all-time high above $70,000 on Friday, up 11.5% over the last seven days.

Yet starting this week, countless crypto runner-ups are grinding up faster: Ethereum (ETH) is up 16.4% at $4,000 even though its prospects for a U.S. spot ETF are still uncertain. Meanwhile, dog-themed coins like DOGE, SHIB, and FLOKI—which were first launched as jokes rather than for any specific purpose or utility—are up 31%, 145%, and 259% respectively.

Hougan says the phenomenon is a “tale as old as time” that also plays itself out in traditional financial markets, where investors cash out on profits in large-cap stocks to invest in riskier small-caps.

“What catalyzes alt season is not the percentage return of Bitcoin," he explained, "but the cumulative size of the wealth effect."

Bitcoin Price Surges to Another All-Time High Above $70,000

Just days after breaking the 2021 record price, Bitcoin has surged even higher early Friday, setting a new all-time high price above $70,000. Bitcoin, the leading cryptocurrency by market cap, rose as high as $70,099 on Friday per data from Coinbase, beating the previous record price of $69,324 from Tuesday. It's up 4% over the last 24 hours. As on Tuesday, however, Bitcoin immediately dumped after setting the new record price: Coinbase shows a current price of $68,172, just minutes after reachi...

Though Bitcoin’s long-term percentage return has declined since its earliest and most volatile days, its absolute gains in terms of market cap have grown exponentially. In February, for example, BTC experienced its largest-ever daily candle close in dollar terms, even though its 45% jump has been beaten in percentage terms.

Ironically, this has given rise to a pattern where altcoins outperform BTC during a bull run even though it was Bitcoin that catalyzed investor gains to begin with—and it gets stronger with time.

Since November 2022, the asset’s market cap has soared by $1 trillion, giving Bitcoin investors plenty of extra money with which to gamble on altcoins. Furthermore, since coins like PEPE—up 121% this week—have lower market caps and are more thinly traded, it doesn’t take nearly as much buying power to send them to the moon.

Meme Coin Floki 69th Largest Asset With 38% Gain

March meme madness rages on as Floki Inu (FLOKI), Dogwifhat (WIF), and PepeCoin (PEPE) have all posted double-digit gains in the past day. Altogether the three meme coins have seen $2.8 billion worth of volume in the past 24 hours, according to CoinGecko data. Shiba Inu dog-themed Ethereum token Floki Inu catapulted itself into the very meme 69th largest digital asset by market capitalization—up from 75th largest as of Monday, according to CoinGecko data. At the time of writing, the FLOKI price...

While outflows from Bitcoin into altcoins may seem like a damper for Bitcoin’s diehard HODLers, Hougan doesn’t think the trend will result in an early end to the crypto bull run. After all, Bitcoin has an all-new source of massive, persistent demand in the form of ETFs, which can keep the “wealth effect” going for a long time.

“The result is more of an 'everything season' than a classic 'alts season,'" he wrote. "That's what we're seeing in the market and I suspect it will continue."

Edited by Andrew Hayward