Memecoins, powered by cheap transactions on Solana and Base, have become a top agenda item for crypto investors in 2024. Despite the market's recent range-bound state, which some analysts dubbed “chopsolidation,” top tokens like DogWifHat and Pepe have shown massive returns. Although most memecoins are down from their Q1 highs, they await a bullish market return.
To provide insights into this trend, Bybit has delved into its private data, revealing how retail and institutional investors engaged with the memecoin market from January 1 to May 1, 2024. The report highlights the large portion of crypto portfolios now allocated to memecoins and the strategic shifts observed over this period.
The report covers the period from January 1 to May 1, 2024, focusing on active users (those with more than 20 monthly trades) on Bybit. It examines users' trading behavior by asset class and user group, categorizing users as either institutional traders or retail traders with assets under $50K. Memecoins include 25 listed tokens such as BABYDOGE, BOB, BOME, and PEPE.
The approval of the Bitcoin ETF on January 11 led to a decent price run-up for crypto investors. Data from Bybit shows institutional investors increased their memecoin allocations materially, with holdings peaking in March and April.
Institutional memecoin holdings jumped 226% to $204 million in March and further to $293.7 million in April before being halved to $139 million as market sentiment soured. This indicates a 125% increase from the start of the year, reflecting expectations for a return to extreme risk-taking.
Institutional stablecoin holdings saw a decline from $1.7 billion in February to $1.4 billion in April, with funds shifting to memecoins, Bitcoin, and Ether. By May, institutions had reduced their Bitcoin, Ether, and memecoin positions, increasing their stablecoin holdings from 22.55% in April to 36.84% in May, marking a $500 million increase since January.
From January to April, retail investors on Bybit increased their holdings of Bitcoin, Ether, and memecoins amid a belief in a new bull run to come. Their stablecoin balances increased from $2.2 billion to $2.9 billion by May due to external fund allocations.
Other highlights show that retail memecoin holdings rose sharply, peaking at $567 million in early April before falling to $371 million. This suggests that retail investors were responsive to market conditions, challenging the notion that they represent "dumb money."
Retail investors sold their positions concurrently with institutional investors, the report notes, with all crypto positions decreasing by May 1, including stablecoins. Ethereum allocations fluctuated more than Bitcoin but saw an increase from 7.70% in April to 8.11% in May.
Bybit further details that retail traders were less interested in trading memecoin perpetual contracts than other products, with $72 billion in trading volume, much lower than BTC, Ether, and altcoin trading volumes. Out of a total trading volume of $1.2 trillion for the period, their memecoin trading volume represented just 5.8%.
Institutions, while more risk-averse in their spot holdings, were risk takers in their perpetual trading. Memecoins accounted for 15% of their total volume — nearly three times that of retail. Institutional traders' total volume on Bybit for the period was $2.6 trillion.