Memecoins Plunge as Crypto Liquidations Hit $1.7 Billion

Significant Market Dive for Memecoins on December 10

On December 10, the memecoin market experienced a notable decline, with prominent tokens like Dogecoin (DOGE), Shiba Inu (SHIB), and Dogwifhat (WIF) incurring substantial losses. These drops exceeded the broader cryptocurrency market sell-off and erased much of the gains from a recent rally associated with former U.S. President Donald Trump.

Market Cap Slumps to a Three-Week Low

The total market capitalization of the memecoin sector fell to $119.6 billion, its lowest point since November 27, when it briefly hit $118 billion. This represents a 21% plunge in just 24 hours. Simultaneously, daily trading volumes for memecoins nearly doubled, reflecting increased selling pressure as investors sought to mitigate losses.

Dogecoin Leads the Decline

Dogecoin, the largest memecoin by market cap, lost 5.6% in the past 24 hours. Its rival, Shiba Inu, fared worse, dropping 10.4% during the same period. Notably, Ethereum-based PEPE was the only significant memecoin to defy the trend, gaining 1.7%.

Open Interest Decline Precedes Crash

The steep decline in memecoin prices on December 10 was preceded by a sharp drop in open interest (OI) across major tokens. OI measures the total number of unsettled derivative contracts and witnessed significant reductions as traders closed positions amid increasing bearish sentiment. PNUT led the retreat with a 30% decline in OI over the past 24 hours, indicating waning confidence in the token. Dogecoin (DOGE) followed suit, with its OI plummeting over 20% to $3.1 billion—still six times higher than Dogwifhat (WIF), which experienced a 27% decline in OI to $519 million. Ethereum-based PEPE saw a more moderate reduction of 11% to $302.4 million.

The decline in open interest points to reduced market activity and confidence as traders exited their positions, exacerbating the memecoin sell-off.

Liquidation Event Shakes the Market

The broader cryptocurrency market recently faced a surge in liquidations, with over $1.7 billion lost within 24 hours. Notably, $1.3 billion was liquidated within just 12 hours, making this event the largest of its kind since 2021, according to CoinGlass data.

Memecoins were among the most heavily affected by the liquidations. Dogecoin was particularly impacted, with long positions worth $72.6 million wiped out. Shiba Inu also faced losses, with $22.35 million in long positions liquidated. Additional losses included $7.9 million in PEPE longs and $3.6 million in WIF longs. This liquidation event mirrors a similar occurrence during the December 5 flash crash, when $816 million in long positions vanished from the market. The current turmoil echoes the volatile nature of the cryptocurrency landscape.

Bearish Sentiment Grows

The decreased open interest in memecoin derivatives suggests a pessimistic outlook, with traders closing leveraged positions in anticipation of further declines.

This sell-off mirrors the initiation of the 2021 bear market and highlights the volatility inherent in memecoins. During the December 10 crash, Bitcoin's price fell by 11%, triggering a wider sell-off in altcoins. Memecoins alone lost $1 billion in market capitalization. Amidst these market fluctuations, memecoins serve as a stark reminder of the speculative nature of digital assets in the cryptocurrency space.