Meme coins as a short-term market barometer

Meme coins have become not only a cultural phenomenon of the crypto market but also an indicator of investor sentiment, reflecting the close interconnection with the dynamics of significant digital assets.

How meme coins correlate with other assets

Back in 2021, during the hype around decentralized finance (DeFi), analysts discovered a strong correlation between the performance of meme coins and Bitcoin. According to CryptoCompare, the correlation index between Dogecoin (DOGE) and Bitcoin (BTC) exceeded 0.82, meaning their price movements were very similar.

However, due to lower liquidity, meme coins demonstrate much stronger growth. For example, between January and May 2021, both Bitcoin and DOGE rose significantly — by 600% and 12,000% respectively.

A similar situation occurred at the end of 2024: from September to December, Bitcoin's value nearly doubled, while DOGE surged more than 600%.

During market corrections, however, the opposite pattern emerges: in crises, meme coins lose investor support much faster than liquid, well-capitalized crypto assets.

Ethernity Capital founder Mati Greenspan noted that meme coins are an indicator of "market optimism." Their growth outpaces BTC, but at the first sign of a negative trend shift, they can lose 50% in a single day.

Earlier, Standard Chartered predicted that by the end of 2024, Bitcoin could reach $100,000 due to halving and Bitcoin-ETF adoption. In that scenario, meme coins were expected to deliver outsized returns (DOGE was projected to rise 300–500%), but with the risk of sharp corrections, which is precisely what happened.

As a result of the correction from January to March 2025, Bitcoin lost only about 30% of its value, while Dogecoin dropped by 70%.

Are tweets more important than fundamentals?

The performance of meme coins shows that this asset class is almost entirely speculative — but that's precisely what makes them a "sentiment indicator." Fundamental assets with strong technological underpinnings, such as XRP (XRP) and Cardano (ADA), often introduce "informational noise" into analysis since multiple factors like regulation, partnerships, or major protocol upgrades can influence their performance.

Take, for example, another popular meme coin — Pepe (PEPE). According to Santiment, PEPE's 30-day price standard deviation was 85% compared to 40% for the average altcoin. This makes meme coins excellent tools for short-term speculation.

Well-known analyst and former Messari director Catherine Wu also noted that fundamental altcoins respond to technological upgrades (e.g., Ethereum Dencun), while meme coins react to "viral" content. The only difference lies in reaction speed — a key factor, according to her. Meme coins usually give a signal 2–3 weeks before mass sector movements.

Social influence plays a key role during crypto market upswings. For example, when the number of Twitter mentions of PEPE peaked, the coin's price rose by 150% within a week, according to Santiment data.

There is also a strong correlation between meme coins and other social metrics. For instance, Dogecoin's price correlates with Google Trends search queries. On July 21, 2021, both DOGE's price and Google search interest hit a three-month high.

Some experts believe that social media has already replaced traditional investor indicators, such as the Fear and Greed Index. Analysts have noticed a pattern: if the volume of mentions grows faster than the coin's price, it can signal an entry point for traders. The same rule applies in bear markets.

Meme coins serve best as leading indicators, especially during transitional market phases. Their dynamics can be helpful when the market shifts from bearish to bullish and vice versa. The principal value of meme coins lies not in profit generation but in showing where investors are headed.

However, due to their high volatility and speculative nature, meme coin trends are useless for long-term forecasting. According to Gartner, unless meme tokens gain practical utility (e.g., integration with DeFi tools), 70% of them will vanish from the market by 2026.