why are Brett, PNUT, Popcat falling?

Most meme coins have fallen this week as many retail traders continue to sell in panic as the cryptocurrency’s outlook worsens.

The market value of all meme coins tracked by CoinGecko fell 12% to $113 billion on December 13.

While most meme coins fell, the sell-off was more pronounced in smaller tokens. Brett (BRETT), Base Blockchain’s largest cryptocurrency, fell 11.2% on Thursday and 23% in the last seven days.

Peanut Chipmunk (PNUT), the Solana meme coin that recently went viral, has lost 40% of its value in the last seven days. Similarly, Popcat (POPCAT), Turbo and Mog Coin were among the worst-performing cryptocurrencies. The market cap of all Solana meme coins fell 15% to $15.5 billion.

Meme coins have crashed due to Bitcoin’s continued performance. After rising to a record high of $108,200, Bitcoin fell below $100,000 as we predicted earlier this week.

Bitcoin has fallen due to tensions surrounding profit-taking and the hawkish Federal Reserve. At its last meeting of the year, the bank expressed concerns about inflation and warned that it would make only two cuts in 2024.

Meme coins crash after Bitcoin crash

Meme coins always fall when Bitcoin falls. Their pullbacks are often more severe because most of them are held by retail investors who ride the bullish wave. This is different from Bitcoin, which has large institutional investors such as MicroStrategy, Marathon Digital and Tesla. Bitcoin ETFs also have assets of over $115 billion. Historically, institutional investors have had a longer investment horizon than retail investors.

A good example of this selling is in on-chain metrics. The number of smart money investors in Squirrel Peanuts has fallen from a peak of almost 100 last month to just 35, according to Nansen.

Squirrel Peanut smart money moves | Source: Nansen

The same trend is happening at Brett, where the number of smart money holders and their balances have been falling over the last few weeks. Brett has close to 40 smart money holders and their balances have fallen to their lowest level in months.

Brett token smart money investors | Source: Nansen Will meme coins recover?

Bitcoins and these meme coins are likely to bounce back for three reasons. First, Bitcoin is still in an uptrend and this pullback is a respite. Technical experts suggest that Bitcoin price will peak around $122,000 in this bullish cycle.

It is not uncommon for Bitcoin to pull back after hitting significant resistance. For example, when it reached an all-time high in March, it went through a long period of consolidation.

Second, historically Bitcoin and altcoins perform well in the first quarter of the year. Data from CoinGlass shows that the average Bitcoin return in the first quarter was 56%. This makes it the second best quarter after the fourth quarter, which means there are chances of recovery in the first quarter.

Bitcoin performance by quarter: Source: CoinGlass

Third, financial assets often overreact when a major event occurs and slow down as investors adjust to the new normal. A good example of this was in March 2020, when stocks and cryptocurrencies lost value after COVID was declared an emergency. They then bounced back and hit an all-time high.