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Why Dogecoin, Shiba Inu, and Pepe Are Soaring Today

It appears reports of the death of meme tokens have been greatly exaggerated.

Three of the most popular meme tokens in the market are rocketing higher today. Dogecoin (CRYPTO: DOGE), Shiba Inu (CRYPTO: SHIB), and Pepe (CRYPTO: PEPE) are each up big. As of 12:45 p.m. ET, these three tokens have rocketed 25.7%, 47.5%, and 35%, respectively, over the past 24 hours.

These moves are absolutely incredible, and invite investors to think back to the previous hype-driven crypto rallies. For those who forgot what it was like to be in the midst of a market that could do no wrong in 2021, that elusive feeling is back, and the fear-of-missing-out (FOMO) rallies are once again underway.

Let's dive into what to make of the incredible moves in these popular community-focused crypto projects, and how much room they may have left to run.

Keeping the rally in context

While many mega-cap cryptos are now up double digits over the past week, Dogecoin, Shiba Inu, and Pepe have each seen triple-digit surges over this time frame. Dogecoin has more than doubled, Shiba Inu has more than tripled, and Pepe has more than quadrupled over seven trading days (crypto markets are open seven days a week).

These sorts of returns aren't really possible for most asset classes, particularly those with multibillion-dollar valuations. So, when this kind of price action takes place, it's important to keep these surges in context.

Pepe (which didn't exist during the previous meme-token rally) has made new all-time highs in terms of both price and market cap today. However, Dogecoin and Shiba Inu remain more than 50% below their previous peaks. For momentum traders and speculators, this could mean that plenty more upside is possible, if this sort of buying activity continues. After all, those looking to really profit from a hype-driven mania tend to do better moving further out on the risk curve. And while such trading activity can certainly drastically increase the risk profile of one's holdings, it appears to be what many are doing right now.

According to liquidation data from Coinglass, all three meme tokens have seen short liquidations outpace long liquidations by a significant margin in recent days. These liquidations of derivatives contracts suggest that traders using derivatives to short these assets are forced to close out their positions, driving the price higher as more and more traders take the long side of this bet.

Where are these tokens headed from here?

So long as capital continues to flow into the crypto sector, and traders continue to amplify their momentum-based positions using leverage to bet on meme tokens, it's entirely possible this rally will continue.

Now, without fundamental growth factors such as greater utility, adoption, and support for these three tokens, it's unclear just how viable these rallies will be long-term. After all, most of the excitement around these tokens is a result of the strong communities supporting these tokens (both from users as well as speculators). A reversal of this momentum in a bear market environment can lead to massive losses (as we saw in recent years), so it's really buyer beware when it comes to these highly speculative and risky digital assets.

That said, it's party on in the crypto sector right now. The popcorn is out, and I'll certainly be watching how these tokens continue to perform from here, but will be doing so from the comfort of the sidelines.

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Chris MacDonald 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.

Why Dogecoin, Shiba Inu, and Pepe Are Soaring Today was originally published by The Motley Fool