Beware of dead cat bounce

Most meme coin prices rebounded on Saturday, December 21, after falling for most of the week, with the total market cap rising 4.7% to $109 billion.

Shiba Inu (SHIB) price rose 12.6% to an intraday high of $0.00002397. Bonk (BONK), the largest meme coin in the Solana ecosystem, rose 20% to $0.000032. Pepe (PEPE) and other popular meme coins such as Dogwifhat and Pudgy Penguins are up over 15%.

This recovery occurred after Bitcoin (BTC)’s drop from $108,200 to $97,000 triggered a massive crash in most altcoins. The total market cap of all cryptocurrencies dropped from $3.7 trillion to $3.37 trillion.

This rebound is likely due to the encouraging US Personal Consumption Expenditures report. The PCE headline, the Federal Reserve’s favorite inflation gauge, softened to 0.1% in November from 0.2% in October. The decline in core PCE from 0.3% to 0.1% is a sign that inflation is slowing in urban and rural areas.

American stocks also reacted positively to Friday’s PCE report; Dow Jones, S&P 500 and Nasdaq 100 indices increased by over 1.18%, 1.10% and 0.85%, respectively.

These figures come just days after the hawkish Fed decision triggered a sell-off in risky assets such as stocks and cryptocurrencies. The bank reduced interest rates by 0.25%, bringing annual cuts to one percent, and signaled that it would make two more interest rate cuts in 2024. The dot chart from the last meeting pointed to four rate cuts.

The Fed has vindicated its hawkish view of stubbornly high inflation. Latest data showed the headline Consumer Price Index rising to 2.7%, while the core CPI remained at 3.3%. The bank also suspects that some of President-elect Donald Trump’s policies (such as tariffs) will be inflationary.

The rise of Shiba Inu, Bonk and Pepe could be dead cat bounce

Meme coins like Shiba Inu, Pepe and Bonk also likely jumped as crypto investors bought the dip after falling for three consecutive days.

One potential risk to the ongoing recovery is that this could be a dead cat bounce. DCB is a situation where falling asset prices make a brief recovery and then continue their downward trend.

For example, Shiba Inu fell 15% on December 9 and 1% the next day. It then rose 6% on December 11, forming a DCB, and then continued its downtrend, reaching $0.00001855 on December 20.

Shiba Inu price has created dead cat bounces in the past | Source: crypto.news

Another potential risk for these coins, especially Shiba Inu, is that some form a head and shoulders chart pattern.

The H&S pattern is a popular downtrend sign consisting of a head, two shoulders and a neckline and its price is $0.00002280. This is a sign that the coin may continue its downtrend.