Market manipulation and liquidity issues

Dogecoin Since its inception in 2013, the meme coin market has grown exponentially, with a total market cap of $60 billion by June 2024.

In March alone, the asset class attracted a whopping $13 billion on exchanges, surpassing major blue-chip cryptocurrencies like Ethereum and Solana. However, this sector is struggling with risks.

Common Red Flags in Mem Coin Investments

According to a recent report by CoinShares, the high concentration of assets among meme coin holders presents a significant risk of market manipulation and liquidity challenges due to the high concentration of assets among a small number of holders.

Larger holdings or whales can significantly affect the value of the token by making large trades, causing volatility. Additionally, if a small number of addresses occupy most of the signals, emission issues may arise. This is especially true if the same addresses dominate the liquidity of decentralized exchanges.

A high Gini coefficient of around 0.8 for these meme coins indicates the centrality of large token holdings.

For those who don't know, this metric evaluates the distribution of tokens between different addresses. Such centralization creates risks such as market manipulation, liquidity problems, and investor wariness, all of which require caution when evaluating “joke” signals.

A high Gini coefficient of ~0.8 indicates the centralization of large token holdings, which creates risks such as market manipulation and liquidity problems, in addition to a level of volatility that is intolerable for most investors.

Investors flock to mm coin forward

Examining relative transaction volumes, CoinShares found that the influence of older meme coins like OG Dogecoin and Shiba Inu is waning. Meanwhile, PEPE and new Solana meme coins have increased traction, now accounting for more than 50% of their combined trading volume.

This change reflects recent investors' preference for new meme coins. There are several factors at play, such as growing communities, blockchain ecosystems, as well as potential for high returns.

Despite this, the liquidity and long history of established meme coins are still important.

Likewise, higher futures open interest reflects the wider market footprint of these coins and increases speculative trading. For example, Dogecoin's open interest recently hit a record high of $1.8 billion, while PEPE's jumped 50% to $850 million in May.

The increase in open interest, which is now over $3 billion, indicates price volatility and indicates that investors are using futures positions to manage their exposure to meme coins.