Memecoins have long been viewed as humorous assets, and few expected that some of them would carve out an important niche in the cryptocurrency market. Today, they have not only become a cultural phenomenon but also a significant indicator of market sentiments, closely tied to the dynamics of major cryptocurrencies.
Correlation of memecoins with digital assets
In 2021, amidst the popularity of decentralized finance (DeFi), analysts observed a strong correlation between memecoins and Bitcoin. According to CryptoCompare data, the correlation index* between Dogecoin (DOGE) and Bitcoin (BTC) was over 0.82, suggesting similar dynamics between the two assets. However, due to lower liquidity*, memecoins often experience sharper increases. For example, from January to May 2021, Dogecoin grew by 12,000%, while Bitcoin increased by 600%.
* The correlation index in the context of cryptocurrencies is a statistical measure that shows the relationship between the price changes of two cryptocurrencies. It ranges from -1 to +1: +1 indicates that the prices of the two cryptocurrencies move in sync, -1 means they move in opposite directions, and 0 indicates no relationship between their movements.
* Liquidity refers to an asset's ability to be quickly bought or sold without significant price changes. In the cryptocurrency context, high-liquidity assets like Bitcoin are easier to buy and sell in large volumes. In contrast, low-liquidity assets like memecoins are more prone to sharp price fluctuations due to limited trading volume.
By the end of 2024, a similar situation occurred: from September to December, Bitcoin's price increased by 100%, while Dogecoin rose by 600%. However, during correction periods*, memecoins often lose investor support much faster than more liquid assets like Bitcoin.
* Corrections refer to a period in financial markets when asset prices (including cryptocurrencies) decrease by a significant percentage from recent highs. Corrections occur due to changes in market sentiment, economic factors, or other external events, leading to a temporary drop in asset prices.
Mati Greenspan, the founder of Ethernity Capital, emphasized that memecoins serve as an indicator of "market optimism": their growth often outpaces Bitcoin's, but even the slightest negative trend can cause them to lose up to 50% of their value in a day.
Predictions and corrections
As previously noted by Standard Chartered, if Bitcoin reaches $100,000 by the end of 2024, memecoins could show exceptional returns (with DOGE expected to grow by 300–500%), but with the risk of significant corrections.
From January to March 2025, Bitcoin lost about 30% of its value, while Dogecoin lost 70%.
Are Tweets more important than fundamental value?
The dynamics of memecoins clearly showcase their speculative nature, making them an excellent indicator of market sentiment. Unlike altcoins* with a strong technological base, such as XRP (XRP) and Cardano (ADA), memecoins are not influenced by factors like cryptocurrency regulation or protocol updates. Instead, their dynamics are driven mainly by viral content and market trends.
* Altcoins are all cryptocurrencies except Bitcoin. The term encompasses a wide range of digital assets, each with its own unique technological foundation, goals, and functions.
For example, the meme coin Pepe (PEPE) had a 30-day price standard deviation of 85%, while the standard deviation for regular altcoins was 40%. This makes memecoins attractive for short-term speculation.
Social media as indicators of interest
Social media plays a key role in the price dynamics of memecoins. For example, when the number of Twitter mentions of the PEPE meme coin peaked, its price rose by 150% over the next week.
There is also a strong correlation between Dogecoin's price and the number of Google search queries. This indicates that social data can replace traditional market indicators, such as the Fear and Greed Index.
If the growth rate of a memecoin outpaces the number of mentions online, it can signal it's time to invest in the asset. This rule works even in a bear market*.
*A bear market refers to a market situation where asset prices (including cryptocurrencies) decline, and there is generally a negative trend. In a bear market, investors are inclined to sell, expecting further price declines, which in turn leads to even greater declines in asset prices.
Memecoins as a leading market indicator
Memecoins act as leading indicators, especially during transitional phases of the cryptocurrency market, for instance, when the market shifts from a bear to a bull phase*. Their principal value lies not so much in generating profit but in understanding the direction in which investors are moving.
* Bull market refers to a market situation where asset prices (including cryptocurrencies) steadily rise, and there is general optimism among investors. In a bull market, there is high confidence in future price growth, which leads to increased buying and higher asset prices.
However, due to substantial volatility* and the speculative nature of memecoins, they are not suitable for long-term forecasts. According to Gartner's predictions, if memecoins do not find real functional use, such as integration with DeFi (decentralized finance) tools, around 70% of them could disappear from the market by 2026. This is because, without support from practical use cases, memecoins will remain speculative assets, making them vulnerable.
* Volatility refers to the extent of price fluctuations for assets, including cryptocurrencies, over a specific period. The higher the volatility, the more quickly asset prices change, creating opportunities for speculative profits but also risks for investors.