A giant new stimulus package in China mixed with a recent Fed rate cut is fueling demand for the more speculative corners of a speculative market.
Meme coins were having quite a moment on Friday, bolstered by market-moving news in the trailing days that has inspired a rally. While even a robust increase in prices will not convince many investors that such cryptocurrencies have value, the latest price jumps are surely making believers out of some former skeptics.
For the most part, meme coins had a fine Friday, with many prices improving at double-digit rates. The top dog in the pack, Dogecoin (DOGE 4.57%), was enjoying a nearly 6% rise in late-afternoon trading. Fellow dog-themed cryptos Shiba Inu (SHIB 8.12%) and Bonk (BONK 9.56%) outpaced their leader with respective 8% and sub-17% increases. Outside of the animal kingdom, Floki (FLOKI 10.84%) was advancing by nearly 13% on the day.
Here comes China
For the key factors behind the rally, we have to look across the Pacific Ocean at China. On Tuesday, the massive country’s government unveiled its most recent package of economy-stimulating measures. Among many other initiatives, one part of this package might soon include the injection of financial liquidity into the nation’s halting banking system. In another major move, its central bank followed this move on Friday with an interest rate cut.
A sudden flood of cash, whether inspired by direct financial injection or a rate cut, means an intensified hunt for investments. It should also result in a larger appetite for risk, so the more outsized the potential returns of an asset class, the better. Meme coins are fitting in such situations, as they are quite a risky segment of the already-risky cryptoverse. We can tell that there’s a broad move in the direction of meme coins because of the relative uniformity of the price gains recently.
Thanks largely to Dogecoin, meme coins have proliferated, with a host of cryptos branded with logos of cute dogs (also known by some as “Doggone Doggerel” tokens. One interesting strategy employed by their developers is to mint these currencies in vast numbers, allowing for the price to settle in minuscule amounts. Even with the recent surge, one Dogecoin will set an investor back barely over $0.12 apiece. A single dollar can buy nearly 50,000 Shiba Inus these days.
Rate cut race?
Meanwhile, we surely haven’t seen the last of melting interest rates. Not long before China’s slice, the globe’s pace-setting central banking system, the U.S. Federal Reserve (Fed), enacted a relatively aggressive 50-basis point rate cut last week. Not only does such a move increase the hunger for risky assets, it also inspires other central banks to cut if they have room to do so; they have to keep the investments in their countries attractive, after all.
As a class, meme coins are too volatile to recommend as a solid long-term play for any investor. For those who can stomach the often sky-high levels of risk, though, they could be worth considering at whatever point this current rally plays out and prices deflate.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
