Why exactly are meme coins like Dogecoin (DOGE), Shiba Inu (SHIB) and Pepe (PEPE) suddenly pumping? Bitwise CIO Matt Hougan says there is a method to the madness.
“The main driver of alt season is a classic 'wealth effect,'” Hougan wrote on Twitter on Friday. “Crypto natives make money on Bitcoin, feel rich, and then look for more speculative assets to invest in.”
Bitcoin (BTC), the crypto market's longtime king, is up 54% year-to-date, thanks largely to inflows and media hype surrounding new Bitcoin spot ETFs launched by BlackRock, Fidelity and others – including Bitwise itself – were launched. On Friday, the cryptocurrency even hit a new all-time high of over $70,000, up 11.5% in the last seven days.
But as of this week, countless crypto runners-up are moving faster: Ethereum (ETH) is up 16.4% to $4,000, although its prospects for a U.S. spot ETF are still uncertain. Meanwhile, dog-themed coins such as DOGE, SHIB and FLOKI – which were originally introduced as a joke and not for any specific purpose or benefit – are up 31%, 145% and 259%, respectively.
Hougan says the phenomenon is an “old story” that also plays out in traditional financial markets, where investors cash out profits from large-cap stocks to invest in riskier small-cap stocks.
“What triggers the alt season is not the percentage return of Bitcoin,” he explained, “but the cumulative size of the wealth effect.”
Although Bitcoin's long-term percentage return has declined since its earliest and most volatile days, its absolute gains in terms of market capitalization have grown exponentially. In February, for example, BTC experienced its largest daily candle close ever in dollar terms, although the increase was exceeded by 45% in percentage terms.
Ironically, this has created a pattern of altcoins outperforming BTC during a bull market, even though it was Bitcoin that triggered investor gains to begin with – and it is getting stronger over time.
Since November 2022, the asset's market cap has increased by $1 trillion, giving Bitcoin investors plenty of additional money to bet on altcoins. Additionally, since coins like PEPE — which are up 121% this week — have smaller market caps and are traded less frequently, it doesn't take nearly as much purchasing power to send them to the moon.
While Bitcoin outflows into altcoins may seem like a dampener for die-hard Bitcoin HODLers, Hougan does not believe this trend will lead to an end to the crypto bull run any time soon. Finally, Bitcoin has an entirely new source of massive, sustained demand in the form of ETFs that can sustain the “wealth effect” for a long time.
“The result is more of an 'everything season' than a classic 'olds season,'” he wrote. “That’s what we’re seeing in the market and I suspect it will continue.”
Edited by Andrew Hayward
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