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[Weekly] Wild ride of $PEPE & risks of memecoin Investing

This week we witnessed the rise of memecoins and their impact on the overall crypto market and institutional interest in ETH after the Shapella Upgrade. Bitcoin's 'reserve-risk multiple' turns positive for the first time since October 2021, indicating the confidence of long-term holders.

Author

Sabyasaachi K
April 22, 2023

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Disclaimer: All price movements are recorded up to 03:30 PM UTC, 21st Apr 2023

After a couple of successive good weeks, this past week has been like a ship in a stormy sea, with all charts showing red as investors try to weather the turbulent conditions and avoid being swept overboard.

Crypto simplified

This was an extremely interesting week in crypto. You know the market is shredding its bearish sentiments when memecoins and their crazy rise to fame is the talk of the town.

MMGA = Make Memecoins Great Again 🤦‍♂️

Believe it or not, several of the memecoins that actually make it to trending in crypto Twitter can significantly impact the overall crypto market.🫡

The transaction charges on Ethereum, also known as Gas fees, skyrocketed. At one point, transaction charges were over $30. No points for guessing the primary driver. It was ‘memecoins.’

Hence, these memecoins are integral parts of the cryptocurrency ecosystem, whether you like it or not.

Let us take a look at the mad rush that follows these memecoins.

$PEPE is the latest trending memecoin and few wallets were seen going from $500 to more than $3.78M in 5 days. 😱

So, should you invest in memecoins?

Yes and no!

When Yes: As long as you're not investing anything more than you can afford to lose, you're fine. Even then, it should be a very small portion of your entire portfolio.

When No: If you believe that you can be an instant millionaire by putting your money in memecoins!

A simple on-chain investigation for $PEPE shows that a handful of wallets contain a major chunk of the entire supply. This causes a major risk for the market and holders as those wallets hold a token value superior to all the on-chain available liquidity.

⛔️ Selling their bags will drain all the liquidity and dump the token by more than 99% 📉

$PEPE's liquidity compared to its market cap is a major risk for token holders, resulting in a potential market crash if some holders decide to take profit from their positions.

Top Highlights of the Week

1. Smart money getting attracted to ETH

The influx of Institutional interest in ETH after the Shapella Upgrade can be witnessed from the Open Interest (OI) in the Chicago Mercantile Exchange's futures market. OI is the number of outstanding contracts that have been carried forward to the next expiry.

👉🏻 OI rose by 39% to 6,248 👉🏻 In USD terms, the rise was by 74% to $675 million, reaching a 12-month high

Our takeaway: Such a massive rise in OI represents an influx of institutional money into the ecosystem. And, as was expected, ETH rose almost 8% since the upgrade. The price of ETH in the futures market was higher than the spot market by almost 4%. It only points to the one thing we have always loved: institutional investors are bullish on ETH!  

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2. In maths we trust!

Bitcoin’s reserve-risk multiple turned positive for the first time since October 2021. This multiple compares two things:

1️⃣ The incentive to sell 2️⃣ The opportunity cost of selling

In simple words, it shows the confidence of long-term holders in comparison to the current price of the asset, in this case, Bitcoin.

Source: Glassnode

There were a few times when this ratio was positive. Here is how the price of BTC reacted during those occasions:

  • 2012 → +2,830%

  • 2013 → +556%

  • 2015 → +6,400%

  • 2019 → +99%

  • 2020 → +487%

Our takeaway: Although the numbers and past price actions have been phenomenal, it is important to understand that expecting the same returns might make you best friends with Balaji Srinivasan (the guy who has stated that 1 BTC will be worth $1M in 90 days). However, considering Glassnode's subsequent data that demonstrates 32.3% of the BTC supply in the market turned profitable when price reached $30,000. So we can strongly expect a selloff whenever BTC touches the resistance level. 

3. Arbitrum is leading

Arbitrum is leading the Layer 2 race in terms of transaction volume, having crossed 200 million transactions this past week. This feat is incredibly significant because the airdrop for $ARB has already been completed.

Source: Dune Analytics

Our takeaway: The race within the L2 ecosystem is pretty tough. Different chains are fighting for the same trophy of 'low transaction fees.' Given that Arbitrum's airdrop activity has recently completed and transaction volumes still continue to be growing speaks of the trust on the Arbitrum network. It is bound to attract even more builders to keep bulding in this ecosystem. 

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Disclaimer: All price movements are recorded up to 03:30 PM UTC, 21st Apr 2023

It was a tough week for the different sectors with the UK inflation numbers causing investors to exercise caution.

Crypto jargon of the week

Explain Like I'm 5

"Genesis Block"

Where it all started

The very first block in a blockchain network

Example- The genesis block is also called block zero