In-depth Analysis of Memecoins Investment Strategies

In the cryptocurrency market, memecoins have always been a controversial yet undeniable category of investment. This article will delve into the investment logic, analytical methods, and risk control of memecoins from multiple perspectives.

Investment Logic of Memecoins

Memecoins have a high beta characteristic against Layer 1 (L1) assets, which means they can provide a leverage effect on L1 assets without actually leveraging. For example, allocating a small amount to certain memecoins can achieve higher return potential while avoiding liquidation risks.

Taking BONK and SOL as examples, when BONK's 30-day beta exceeds the 90-day rolling beta, the average 30-day and 60-day returns for BONK can reach 124% and 413%, respectively. This significant excess return highlights the importance of buying at the right time.

It is important to note that although BONK's performance is usually related to SOL, this correlation often weakens during periods when BONK performs well. This phenomenon has been observed in the fourth quarter of 2023, the first and fourth quarters of 2024, and in April of this year.

On-chain Data Analysis

In addition to price performance, on-chain data analysis is also an important means of assessing the investment value of memecoins. Here are a few key indicators:

1. Growth of Token Holders: Reflects the recent popularity and spread rate of the Token.

2. Median and Average Holding: Reflects the strength of belief of Token holders.

3. Proportion of large holders: The proportion of holders with over $1000 and over $100k can reflect investors' interest and belief.

4. Whale Retention Rate: Measures the long-term confidence of large holders.

5. Whale Trading Behavior: Analyze the buying or selling behavior of large holders on DEX.

Other Considerations

In addition to on-chain data, the following factors must also be considered:

1. Trading Liquidity: Prioritize memecoins with sufficient liquidity.

2. Price Volatility: Tokens that have experienced multiple significant pullbacks may hold greater investment value.

3. Open Interest: Reflects market participation and potential volatility.

Community and Faith Factors

The success of memecoins largely depends on their community strength and cultural influence. Investors should pay attention to:

1. Global Audience Potential
2. Engaging Narratives and Slogans
3. The strong belief and sense of belonging among community members
4. Community Leadership and Coordination Skills
5. Cultural Integration Depth
6. Social media promotion strategies, especially TikTok marketing targeting young audiences

Valuation Method

1. MVRV Ratio: When the MVRV is below 1, it may indicate that the market is approaching a local bottom, presenting a potential buying opportunity.

2. Momentum Indicator:

   • RSI: Below 30 indicates oversold, above 70 indicates overbought
   • Moving Average: Analyzing the price relative to key moving average levels.
   • Google Search Trends: Reflects changes in public interest

Macro Environment Considerations

Memecoins are extremely sensitive to liquidity conditions. Favorable liquidity and economic environments, combined with a return to risk appetite sentiment, are key moments for allocating memecoins.

Conclusion

Investing in memecoins requires a comprehensive consideration of various factors, including the correlation with L1 assets, on-chain data, community strength, valuation indicators, and the macro environment. Although this investment strategy cannot completely avoid risks, through systematic analysis and prudent risk management, investors can seek potential opportunities in this high-risk, high-return market.

It is worth emphasizing that memecoins belong to a category of investments with extremely high risks. Investors should strictly control their positions and view them as a small supplementary part of their investment portfolio, rather than a major allocation. Before making any investment decisions, thorough research and risk assessment should be conducted.