Unveiling why the first wave of the 2026 market rally was driven by Memecoin: the underlying logic from extreme FUD to a return to normalcy.

Compiled by Odaily Planet Daily (@OdailyChina); Translated by Moni

After a grueling fourth quarter of 2025, the cryptocurrency market finally showed signs of recovery in early 2026.

Contrary to many people's expectations, it was not Bitcoin or Ethereum that ignited the crypto market at the beginning of the new year, but Meme Coin. After a period of quiet holidays and sluggish market activity, Meme Coin is making a strong comeback.

Is the cycle of capital circulation repeating itself?

Frankly speaking, the current Meme coin rally wasn't unexpected. At the end of 2025, market liquidity dried up, FUD (Fear, Uncertainty, and Doubt) spread, and retail investors' risk tolerance dropped to its lowest point of the year. Meme coin's market capitalization fell by more than 65%, even dropping to $35 billion on December 19th, a new low for the year, as traders' risk tolerance declined. After Christmas, with Bitcoin remaining volatile and mainstream assets lacking direction, funds naturally shifted to more volatile, high-beta assets, and Meme coin filled this gap.

According to CoinMarketCap data, the overall market capitalization of the Meme coin sector has exceeded $47.7 billion, an increase of nearly $10 billion from $38 billion on December 29, 2025. Among them, the top three Meme coins by market capitalization saw a weekly increase of nearly 20% for DOGE, 18.37% for SHIB, and 64.81% for PEPE.

Meanwhile, Meme's trading volume also surged along with its market capitalization, jumping from $2.17 billion on December 29, 2025 to $8.7 billion this Monday, an increase of 300%.

From a data perspective, this surge in Meme coin's price is not a "monster coin" phenomenon for a single token, but rather a broad-based recovery across the sector. Simultaneously, increased social media discussion and on-chain transaction volume indicate a return of attention and liquidity, rather than simply a price spike.

Technical Analysis Supports: Meme Coin's Rebound is Not Unfounded

Meme Coin is one of the riskiest cryptocurrencies, and a price rebound could indicate that investors are willing to take on even higher risks again. From a macro technical perspective, the TOTAL3 (total market capitalization of crypto assets excluding BTC) indicator shown in the chart below indicates that the crypto market has shifted from a downtrend to a recovery phase, suggesting that market behavior has changed from "selling on rallies" to "buying on dips."

The TOTAL3 is currently testing a key resistance level of approximately $848 billion, which also corresponds to the 200-day moving average and the medium-term trend line. If it breaks through and holds above this level with significant volume, the technical target could be $900 billion, providing room for a continued rebound in altcoins and Memecoins.

From an internal perspective, Meme coin exhibits a clear systemic strengthening trend. The recent surge is not concentrated in a single asset, but rather covers multiple assets including PEPE, BONK, DOGE, FLOKI, and MOG, and spans the ETH and SOL ecosystems. This broad participation typically indicates that funds are allocating resources across the sector, rather than engaging in short-term speculation on individual targets. Historical cycles also show that during Bitcoin's consolidation phases, high-beta assets often rebound first, testing the market's risk tolerance.

Leverage and Sentiment: Bulls Enter the Market, but Leverage Risks Accumulate Simultaneously

The Meme coin derivatives market also heated up rapidly. Coinglass data shows that DOGE's open interest increased by 45.41% in the past 24 hours, reaching $1.941 billion; PEPE increased by 33.32%, reaching $514 million; SHIB increased by 93.66%; WIF increased by 123.39%; and PENGU increased by 69.04%.

Open interest is typically a key indicator for determining whether real money is entering the market, as it reflects the total amount of unsettled derivative contracts. Every seller's transaction has a buyer to settle it. The recent rebound in Meme coin prices has been validated by the simultaneous increase in both open interest and trading volume. Represented by PEPE and DOGE, many Meme coins have seen a significant increase in derivative trading volume alongside their price increases. This synchronicity usually indicates a strong bullish market momentum, as leveraged traders anticipate price increases and will open more contracts, suggesting genuine long positions being established rather than simply short covering.

Of course, the rapid expansion of open interest also means a simultaneous accumulation of leveraged exposure. Given the limited fundamental support for Meme coin and its highly sentiment-dependent pricing, increased activity on high-leverage platforms could significantly amplify short-term volatility. Historically, Meme coin has often been a "canary in the coal mine" for market movements: it is the first to reflect changes in risk appetite, but also the most prone to a rapid decline when sentiment reverses. Once market sentiment reverses or external shocks occur, excessively concentrated long positions could trigger rapid deleveraging and a chain reaction of liquidations. Therefore, although derivatives data positively validates the current rebound, its structure also suggests that the risk of a short-term pullback should not be ignored.

The upward trend of altcoins may follow the trajectory of Meme coin, potentially benefiting SOL.

Santiment, an on-chain analytics platform, previously published an analysis on the X platform stating that the current Meme coin rebound began a few days after Christmas, when FUD sentiment among retail traders reached its highest level. The crypto market often sees the first assets to rebound that are least favored by retail investors.

As market funds begin to disperse into "other" areas like Meme coins, altcoins may soon see a price surge. Historically, SOL is the altcoin that has benefited the most from the Meme coin craze.

Memecoin has been one of Solana's main growth engines, driving user activity and cultural influence over the past few years. This activity has helped attract developers and traders to the network and played a significant role in Solana's decentralized finance resurgence. At the same time, the dominance of memecoin trading has influenced investor and financial institution perceptions of the network, often linking Solana's growth to speculative cycles.

Igor Stadnyk, co-founder and head of AI at True Trading, said that Meme has become part of Solana's cultural identity and a liquidity engine that attracts users, but Solana's next phase of growth may come from applications that rely less on viral speculation and more on continuous execution, such as on-chain perpetual futures and AI-native trading agents.

Is this the prelude to recovery? Or a classic bull market trap?

Given that the current crypto market has not yet fully recovered from its slump, there are some doubts within the community about the current Meme coin craze: Is this the prelude to a full recovery, or just a short-lived emotional rebound?

Optimists believe that Meme's strong rebound signifies a return of risk appetite in the crypto market, potentially leading to a surge in altcoins and even mainstream assets. However, on the other hand, the characteristics of social media-driven growth, leverage amplification, and prices far below historical highs seem highly similar to past "bull market traps." For traders, this is not a signal to blindly chase highs, but rather a phase requiring high discipline, rapid response, and strict risk control.

But one thing is certain: Meme coin has kicked off the first wave of the 2026 crypto market rally. Will it illuminate a new bull market, or will it overheat and backfire? The answer may soon be revealed.