Pepe Coin and the Paradox of Exit Liquidity: How it’s Affecting Investors

pepe coin

With no token utility or an actual use case in the true sense, meme coins are a kind of cryptocurrency representing a hyped MEME, or a funny image, gif, video, incidence, or any idea. Memecoins are subject to virality and designed so that as the meme gets viral, the token is followed by it and traded within the community. 

Memecoins represent some of the top crypto tokens, take DOGE or SHIBA for example. DOGE ~ a famous meme coin that was created in 2013 around a joke to mock the hype around mainstream cryptocurrencies like BTC & ETH, frequently supported by Twitter’s owner & prominent entrepreneur Elon Musk, is currently placed at #8 among the top 10 crypto tokens listed on Coinmarketcap, with a massive circulating market capitalization of $11.17 Bn. 

Pepecoin: the “most MEMEable” Memecoin

With the recent revival of Bitcoin to the $30K level, a new Memecoin ~ PEPE coin was launched, surging more than 2100%, raising a lot of eyeballs in the industry. Considered a meme token by some and a scam by many, let’s understand what exactly Pepecoin is.

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The green humanoid cartoon frog Furie’s Pepe, which initially appeared in a 2005 comic book, serves as both the name and inspiration for cryptocurrency. The Pepe meme skyrocketed in popularity in the 2010s and has remained relevant ever since. The mascot of Pepe Coin pays homage to the first Pepe meme, which has since become legendary in the world of cryptocurrencies. The project was only made public through a tweet sent on April 4th and announced the endeavor. The trading of the coin began on April 17, 2023.

Listed on prominent exchanges like Uniswap, Gate, Huobi, OKx, and many more, the $PEPE token trades at $0.000001, with a circulating market cap of $522.5 Mn and $473.04 Mn in 24hr trading volumes, at the time of writing. Despite no actual use case tied to the token, the project has done phenomenally well in the markets and is currently driving massive hype.

Liquidity crunch in $PEPE

According to Ethereum block explorer etherscan, over 75,000 people hold the PEPE token, and some wallets, excluding centralized exchanges, own more than $5 million’s worth of the tokens.

The PEPE token increased by 350% just over the weekend. On Tuesday, BitMEX, a derivatives exchange, said it would sell perpetual swaps for the token, allowing traders to trade the erratic asset with up to 50x leverage.

The high-yielding stats attracted & influenced many people to buy the meme token. Last month, an investor swapped 0.125 ETH, worth $250 for a staggering 5.9 Tn PEPE tokens. Reportedly, the value of his $250 ETH turned into $1.14 Mn following the rally in PEPE’s price. Following the increased interest and market appreciation, this investment value multiplied and amounted to $2.1 Mn, making a hot buzz in the markets. However, the investor could not withdraw the profits as there was no availability to back the token at that time. 

Grzegorz Drozdz, a market analyst at Conotoxia Ltd., pointed out: “With 5.9 trillion PEPE tokens in their portfolio, it would take 46,200 years to liquidate these assets, assuming non-declining demand.” 

He further emphasized that attempting to book all of the profit quickly could cause the price of the PEPE token to collapse suddenly and make it a huge dump, “even below the purchase level.” 

Eventually, the investor was trapped in an “Exit Liquidity Crunch”, where the token had no liquidity backing the token. This means that the investor was left with a token he could never sell/unwind from the position while the token’s issuer can sell it at multiplied value than the mint cost, earning high yields.

Closing Thoughts

The $PEPE token has revived the MEME hype during the long-prevailing dead markets. The token initially experienced high exit liquidity crunch due to low liquidity volumes and meager prices at which it was swapped against other crypto assets. However, as it got popular and grabbed more eyeballs, $PEPE is now listed on tier 1 exchanges and has a decent market capitalization, safeguarding the investments of early adopters. Just today, Binance tweeted that it is listing the token, making the price surge by a massive 81% within 24 hours!

Following the success of $PEPE, many more meme coins are expected to launch, leveraging the short-term hype cycle despite crashing economies worldwide. Even though many of these shitcoins will be pump-and-dump schemes, those that manage to attract the attention of influential figures (like Elon in the case of DOGE) can spur widespread adoption, validating the argument that “crypto tokens are not driven by utilities but hype“—however, this will be the subject of a different blog post from Tradedog!

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