The First Wave of the 2026 Market is Actually Meme Coins: Prelude to Recovery or Bull Trap?

Source:Ambcrypto & Cointelegraph

Compiled by: Odaily (@OdailyChina); Translated by: Moni

After a "grueling" Q4 2025, the cryptocurrency market is finally showing signs of recovery at the beginning of 2026.

Contrary to many expectations, it was not Bitcoin or Ethereum that ignited the crypto rally at the start of the new year, but memecoins. After a period of quiet holidays and sluggish market activity, memecoins are making a strong comeback.

Is the Capital Rotation Cycle Repeating?

Frankly speaking, this round of memecoin activity is not abrupt. By the end of 2025, market liquidity had dried up, FUD sentiment spread, and retail investors' risk tolerance hit a yearly low. The memecoin market cap fell by over 65%, dropping to a yearly low of $35 billion on December 19th, as traders' risk appetite diminished. After Christmas, with Bitcoin consolidating and major assets lacking direction, capital naturally shifted towards more resilient, high-beta assets, and memecoins filled this gap.

According to CoinMarketCap data, the total market capitalization of the memecoin sector has surpassed $47.7 billion, an increase of nearly $10 billion from $38 billion on December 29, 2025. Among the top three memecoins by market cap, DOGE gained nearly 20% in a week, SHIB rose 18.37%, and PEPE surged 64.81%.

Meanwhile, memecoin trading volume has also skyrocketed alongside market cap, jumping from $2.17 billion on December 29, 2025, to $8.7 billion this Monday, a 300% increase.

From a data perspective, this memecoin rally is not a "pump" of a single token but a broad-based sector recovery. Concurrently, social media discussion heat and on-chain transaction volume have amplified simultaneously, indicating a return of attention and liquidity, not merely a price pump.

Technical Support: The Memecoin Rebound Isn't Baseless

Memecoins are among the highest-risk assets in cryptocurrency. When their prices rebound, it may signal investors' willingness to take on higher risk again. From a macro technical structure perspective, the TOTAL3 indicator (total crypto market cap excluding BTC) shown in the chart below indicates the crypto market has transitioned from a downtrend to a recovery phase, suggesting market behavior has shifted from "sell the rally" to "buy the dip."

Currently, TOTAL3 is testing a key resistance level around $848 billion, which coincides with the 200-day moving average and a mid-term trendline. If a breakout with volume occurs and holds, the technical target could extend to $900 billion, providing room for continued rebounds in altcoins and memecoins.

Looking at the internal structure of the sector, memecoins show clear signs of systematic strength. The recent gains are not concentrated in a single asset but span multiple tokens like PEPE, BONK, DOGE, FLOKI, MOG, across both the ETH and SOL ecosystems. This broad participation typically indicates sector-level capital allocation rather than short-term speculation on individual tokens. Historical cycles also show that during Bitcoin's consolidation phases, high-beta assets often lead the rebound to test market risk appetite.

Leverage and Sentiment: Longs Enter but Leverage Risk Accumulates Simultaneously

The memecoin derivatives market has also heated up rapidly. Coinglass data shows that DOGE's open interest (OI) increased by 45.41% in the past 24 hours, reaching $1.941 billion. PEPE's OI grew 33.32% to $514 million, while SHIB's surged 93.66%, WIF's jumped 123.39%, and PENGU's rose 69.04%.

Open interest is often a core indicator for judging whether "real money is entering the market," as it reflects the total volume of unsettled derivative contracts, where every sell trade has a corresponding buy settlement. This memecoin price rebound has been validated by simultaneous increases in open interest and trading volume. Represented by PEPE and DOGE, several memecoins saw significant expansion in derivatives volume alongside price increases. This synchronicity typically indicates strong bullish momentum, as leveraged traders open more contracts anticipating price rises, suggesting genuine long positioning rather than mere short covering.

Of course, the rapid expansion of open interest also means leverage exposure is accumulating simultaneously. Given that memecoin assets themselves have limited fundamental support and pricing relies heavily on sentiment, increased activity on high-leverage platforms could significantly amplify short-term volatility. Historically, memecoins have often been the "canary in the coal mine" for market trends: they can reflect changes in risk appetite earliest but are also most prone to sharp declines when sentiment reverses. Once market sentiment flips or external shocks occur, overly concentrated long positions could trigger rapid deleveraging and cascading liquidations. Therefore, while derivative data positively validates the current rebound, its structure also suggests short-term pullback risks should not be ignored.

Altcoin Rally May Follow Memecoins' Lead, Potentially Benefiting SOL

On-chain analytics platform Santiment previously analyzed on X that this memecoin rebound began a few days after Christmas when FUD sentiment among retail traders peaked. Historically, the crypto market often rebounds first with assets that retail investors are most bearish on.

As market capital begins to disperse into "other" areas like memecoins, altcoins may also soon see a rally. Historical data suggests that the altcoin benefiting most from memecoin frenzies has been SOL.

Memecoins have been one of Solana's primary growth engines, driving user activity and cultural influence over the past few years. This vibrancy has helped attract developers and traders to the network and played a significant role in Solana's DeFi renaissance. Meanwhile, the dominance of memecoin trading has influenced how investors and financial institutions perceive the network, often linking Solana's growth to speculative cycles.

Igor Stadnyk, Co-founder and Head of AI at True Trading, stated that memecoins have become part of Solana's cultural identity and a liquidity engine for attracting users. However, Solana's next phase of growth may come from applications less reliant on viral speculation and more on sustained execution, such as on-chain perpetual futures and AI-native trading agents.

A Prelude to Recovery? Or a Classic Bull Trap?

Given that the current crypto market has not fully emerged from its slump, there is some skepticism within the community about this memecoin frenzy: Is it a prelude to a full recovery, or an emotionally driven short-lived bounce?

Optimists believe the strong memecoin rebound signals a return of risk appetite in the crypto market, potentially followed by rallies in altcoins and even mainstream assets. On the other hand, characteristics like social media-driven momentum, leverage amplification, and prices far below all-time highs seem highly reminiscent of past "bull traps." For traders, this is not a signal to blindly chase highs but a phase requiring high discipline, quick reactions, and strict risk management.

One thing is certain: Memecoins have kicked off the first wave of crypto market action in 2026. Will it illuminate a new bull market, or burn too brightly and consume the market? The answer may soon be revealed.