Memecoins Drive Up Ethereum Gas Fees and Push ETH into Deflationary Territory

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The cryptocurrency market has been relatively stagnant over the past few weeks, with low volatility and little excitement for investors. However, the latest rally in Ether has been attributed to the resurgence of memecoins in the market, which has reignited investor interest.

On Friday, the price of Ether surged by 5.61% to close at around $1,990, according to Coin Metrics. Although it is still below the crucial $2,000 level that it briefly broke through in April following the Shapella upgrade, the price of Ether rose by more than 6% earlier in the day to reach a high of $1,999.59. Meanwhile, Bitcoin ended the day higher by $29,501.16, inching back towards the $30,000 level it has struggled to recover since mid-April.

Market participants have attributed the latest surge in Ether to the resurgence of memecoins in the crypto market. Memecoins are a type of cryptocurrency that are driven by hype and social media, with their value largely dependent on the attention they receive from social media influencers and online communities. Many investors have suffered significant losses from investing in memecoins such as PEPE, SPONGE, Dogecoin, and Shiba Inu, which are often associated with pump-and-dump schemes.

However, the latest memecoin to enter the market is SpongeBob token (SPONGE), which is based on the popular children's cartoon character Spongebob Squarepants. Launched on Thursday, the SPONGE token has surged almost 600% since its launch and is currently trading at less than 1 cent per coin, according to CoinMarketCap.

Pepecoin (PEPE), based on the Pepe the Frog internet meme, has also seen a surge in its value, rising more than 120% over the past 24 hours, according to CoinMarketCap. Pepe the Frog was created by cartoonist Matt Furie in the early 2000s, but it was appropriated by the alt-right in 2016 to the point that the U.S.-based Anti-Defamation League put it on a list of hate symbols.

"There's a ton of memecoin activity on chain right now that's generating a lot of gas fees," said Michael Rinko, a research analyst at Delphi Digital. Gas fees are transaction fees on the Ethereum network, and the current surge in memecoin activity is pushing ETH further deflationary, meaning its supply is decreasing rather than increasing. As gas fees increase, more ETH is burned, and at current activity levels ETH is a deflationary asset, which should help boost its price.

"One of the main reasons ETH is up... is down to a resurgence of memecoins," said Conor Ryder, research analyst at crypto data provider Kaiko. "Whatever your thoughts on memecoins, the facts are they drive users to transact on Ethereum, which helps the network earn more fees. Ethereum gas fees have been revived by the return of memecoins, just today hitting 1-year highs."

As memecoins continue to attract attention from investors, many are waiting for the market to wash out bad actors and irresponsible or otherwise unserious ventures that contributed to some of the catastrophic events of 2022. Nevertheless, the latest surge in Ether suggests that the memecoin trend is here to stay, at least for the time being.

Ether ended the week higher by 4.53%, marking its second straight positive week and the seventh in the last eight. In contrast, Bitcoin closed the week up just 0.35%, its second straight positive week and its third positive week in four.

The crypto market is known for its volatility, with prices fluctuating rapidly based on a wide range of factors. In recent months, the market has been relatively subdued, with many investors choosing to sit on the sidelines as they wait for more clarity about the regulatory environment and other uncertainties.

However, the recent resurgence of memecoins has injected new energy into the market. Memecoins are cryptocurrencies that are based on memes or other cultural references and are often created as a joke or a parody. While many of these coins are not taken seriously by investors, they have become incredibly popular on social media platforms like Reddit and Twitter, and have attracted a large following among younger investors.

The rise of memecoins has been driven in part by the success of Dogecoin, a cryptocurrency that was created as a joke but has become a cultural phenomenon. Dogecoin's price soared earlier this year, fueled in part by the support of celebrities like Elon Musk.

Now, a new wave of memecoins is emerging, with coins like PEPE and SPONGE gaining popularity among investors. While these coins are often criticized for their lack of fundamental value, they have proven to be incredibly popular among young investors who are looking for new ways to participate in the crypto market.

Despite the risks associated with memecoins, many investors are drawn to them because of the potential for high returns. Memecoins are often very cheap to buy, which means that investors can buy large numbers of coins without spending a lot of money. And if the coin's price goes up, the investor can make a significant profit.

However, memecoins are also very risky, and many investors have lost money by investing in them. Unlike traditional cryptocurrencies like Bitcoin and Ethereum, memecoins are not backed by any underlying asset or technology, which means that their value is entirely based on speculation.

Moreover, memecoins are often subject to wild price swings, and it is not uncommon for a coin to go from being worth pennies to being worth thousands of dollars in a matter of days. This volatility can be exciting for investors who are looking for a quick profit, but it can also be incredibly risky.

In addition to the risks associated with memecoins, the crypto market as a whole is still subject to significant regulatory uncertainty. Many countries are still grappling with how to regulate cryptocurrencies, and there is a risk that regulators could crack down on the market in the future.

Despite these risks, many investors remain bullish on the crypto market and believe that it has significant potential for growth. The recent resurgence of memecoins is just one example of the creativity and innovation that is driving the market forward, and it is likely that we will continue to see new and exciting developments in the months and years ahead.

As always, investors should proceed with caution and do their own research before investing in any cryptocurrency. While memecoins may be exciting and potentially lucrative, they are also incredibly risky, and investors should be prepared to lose all of their investment if the market turns against them.

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