Memecoins: Investment Strategies and Analytical Framework

In the cryptocurrency market, memecoins have attracted the attention of investors as a high-risk, high-reward asset class. This article will explore the investment logic, analytical methods, and key considerations of memecoins.

Beta and Leverage Effect

Some memecoins have a high beta coefficient relative to the main assets in their ecosystem. Taking BONK in the Solana ecosystem as an example, it shows a significant leverage effect on SOL. When BONK's 30-day beta exceeds the 90-day rolling beta, it often indicates significant upside potential.

Data shows that in this case, the average 30-day and 60-day return rates for BONK reached 124% and 413%, respectively. This high beta characteristic makes memecoins tools for leveraged betting on underlying assets without bearing liquidation risk.

Price Correlation Analysis

The price trends of BONK and SOL usually show a strong correlation. However, during periods when BONK performs exceptionally well, this correlation tends to weaken. This phenomenon has been observed in the fourth quarter of 2023, the first and fourth quarters of 2024, as well as in April of this year.

It is worth noting that the rise of SOL does not guarantee the excellent performance of BONK. Data shows that in the case where SOL rises by more than 5% within a week, there is still about a one-third probability that BONK will experience a decline.

On-chain Data Analysis

On-chain data provides important references for assessing the holder base and investor confidence of memecoins. Key indicators include:

1. Token Holder Growth Rate
2. Median and Average Holding
3. The proportion of holders with a value exceeding $1000 and $100,000
4. Retention Rate of Large Holders (Whales)
5. The net inflow/outflow of giant whales on decentralized exchanges

These indicators help assess the popularity of the Token, the confidence of holders, and the behavioral trends of large investors.

Trading Liquidity and Open Contracts

In addition to on-chain data, trading liquidity and open contract volume are also important considerations. For memecoins listed on major trading platforms, paying attention to changes in their open contract volume can provide additional market insights.

Community Factors and Cultural Influences

The success of memecoins largely depends on the strength of their community and cultural influence. When evaluating a memecoin project, the following factors should be considered:

• The appeal of project narratives and the infectiousness of community slogans
• The strength of community members' beliefs and sense of belonging
• Leadership and community coordination capabilities of the project
• The degree of integration with mainstream culture
• Social media promotion strategies, especially performance on emerging platforms like TikTok

Valuation Methods

Assessing the "fair value" of memecoins can be approached from the following aspects:

1. MVRV Ratio: The ratio of market value to realized value. When the MVRV is below 1, it may indicate a potential buying opportunity.

2. Momentum Indicator:

   • Relative Strength Index (RSI): Used to determine whether an asset is in an overbought or oversold state.
   • Moving Average: Analyze the price relative to key moving average levels.
   • Google Search Trends: Reflects the changes in public interest in this memecoin.

Macroeconomic Considerations

Memecoins, as high-risk assets, are highly dependent on the overall market liquidity conditions and risk appetite. When considering investing in memecoins, it is essential to closely monitor changes in the macroeconomic environment and market sentiment.

Conclusion

Investing in memecoins requires a comprehensive consideration of multiple factors, including the beta relationship with the underlying asset, on-chain data, trading activity, community strength, and the macro environment. Although the analytical framework provided in this article can help investors systematically assess memecoins, it should be remembered that such investments come with extremely high risks. Before making any investment decisions, investors should fully recognize the highly speculative nature of the memecoins market and act cautiously according to their own risk tolerance.