Memecoin Market Rebounds: Key Indicators to Watch for a Potential Shift

Following a turbulent stretch in the cryptocurrency market, the overall combined market capitalizations of memecoins have made a notable return to the levels seen during Q3 of the previous year.

While the overarching crypto market continues to experience bouts of volatility, the renewed and rapid growth of memecoins signals a potential shift in overall investor sentiment back toward these curious auxilliary assets. Herein, we outline and explain three key on-chain indicators we will be watching closely to assess whether the memecoin market is primed for something akin to a “sustainable” growth phase or is merely experiencing another short-lived speculative surge.

Memecoins are notoriously community-driven, trending virally, and are ruled over by the unpredictable nature of infamy. As for value, it’s been ascribed mostly to the insufficiently speculative market that’s overrun with not a few, but many, sudden spurts of price action that resemble a toddler with a paintbrush. Think of one of those pictures where there’s a bunch of random stuff on canvas, or one where someone has made a bunch of badges and sewn them together. But what do the health metrics of memecoins tell us? Let’s break down the most important indicators.

The recent weeks have seen memecoins regain some lost ground, and eyebrow-raising on-chain metrics have accompanied this development. They serve to inform us whether this apparent rally is led by speculative, push-it-while-it-lasts interest, or if it’s the launch of something more tempting and sustainable. Here are this week’s leading on-chain activities. They comprise a memo on memecoins.

One of the most important on-chain indicators to track in the memecoin market is the number of active traders. When renewed retail engagement occurs, it usually shows up as an influx of short-term traders entering the market. That uptick in trader numbers is clearly seen in the on-chain activity for Shiba Inu in recent days. This is somewhat at odds with how TikTok has given fresh life to Dogecoin, an established memecoin whose on-chain activity has stagnated. In both cases, the increased engagement and uptick in trader numbers are refreshing signs.

At present, a majority of memecoins still seem to be on a downward trend when it comes to trading activity. But if these assets reverse that trend, it might point to a crucial turning point for the overall market. If traders actually start to rise again in this space, then it would strongly suggest that we have new retail participants entering the equation, and those newcomers triggering the next significant pump in these coins. Increased demand from buying traders in this scenario would also seem likely to lead to upward price momentum and therefore growth.

An essential thing to mention is that even though the number of traders is a significant signal, it should be watched along with some other indicators. If we see the number of traders rising but this isn’t happening alongside some positive action in other metrics, then we might just be looking at a temporary situation that’s going to blow over and not a sustainable trend.

An important gauge of the state of the memecoin market is the number of transactions. Although not a perfect indicator of how many new users have adopted a given memecoin, high transaction counts usually mean that a memecoin is being used and that the community around it is engaged. If this trend keeps on keeping on, it can only be a good sign for the future of the memecoins involved.

Even if there aren’t many new users entering the market, high transaction volumes can mean that the existing user base is channeling a lot of energy into the memecoin space. Such activity almost always points to a higher degree of engagement and, with so many coins touted as having strong “communities,” perhaps a space where memecoins are really being used for something beyond trading (governance? staking? niche DeFi applications?). Otherwise, why would transaction counts be going up? And, again, transaction counts are going up.

An early warning sign that a memecoin might be shifting from a speculative asset into something more robust in the cryptocurrency ecosystem is a substantial uptick in transaction counts.

Perhaps one of the most neglected measures for determining the potential of a memecoin is the % of holders in profit. This can provide some very meaningful insights into the market’s overall sentiment. If a large proportion of holders are currently in profit, this could suggest that the market is experiencing some very nice upward movement and that there is nice confidence in the future price action of the asset.

But the reverse is also true. If profitability is down, but usage and transaction volumes are growing, it could mean that there is untapped upside potential. In that case, the market could be undervalued, even if the holders of the assets aren’t seeing much profit. This is an important metric to watch, as it frequently points right to the opportunities that other investors have overlooked. A reversal in profit trends—especially one that happens alongside a surge in usage—could signal, with great clarity, that the price is about to move. And when it does, the movement could easily be upward, as more holders start to see real, actualized profits.

Keeping an eye on profit levels, as well as other indicators, can give a clearer picture of market conditions. If a large number of holders are in profit and we are seeing rising numbers of transactions, it is possible that what we are looking at is a sort of positive feedback loop, driving more and more apparent momentum into the market.

The memecoin market might be on the upswing, but what comes next will depend on a handful of factors. Most crucial is whether retail investors make a sustained return to the space. Also important is whether total transaction volumes relate to profits in any way that implies holders of these assets aren’t just holding for the heck of it. For now, the combined market cap of memecoins is back at around the level of September 2022. Whether this cap can move north with any kind of guarantee that it won’t just bounce back down again remains an open question.

For investors, tracking the active trader count, transaction volume, and profitability will be key to effectively navigating the memecoin space. If retail interest really is starting to come back, then the uptick in active trader count and holder count (retail traders now holding) would seem to suggest that we’re entering a new era of memecoins — one potentially defined by more community engagement and real-world use cases than by the speculative pumps and dumps that have gimmick coins on the radar of regulators.

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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