Meme Coin Investment Strategy: Data Analysis and Trading Framework

What is the investment value of Meme币?

Leverage Effect

Many investors choose MEME coins mainly because they have a high beta coefficient on the underlying public chain (L1) assets. To put it simply, a small allocation of meme coins such as BONK can obtain leverage on L1 assets without using actual leverage ( avoiding liquidation risk ).

When the 30-day beta coefficient exceeds the 90-day rolling beta coefficient, ( last occurred on April 1 of this year, ), it usually signals a significant investment opportunity. In this case, the average returns for BONK over 30 days and 60 days reached 124% and 413%, with medians of 45% and 57%, respectively.

The price comparison shows that changes in risk preference modes usually happen quickly, and BONK can significantly outperform the underlying public chain in a short period of time. This highlights the importance of accurately buying in at market turning points.

Research shows that the surge of BONK often occurs simultaneously with its underlying public chain rising more than 5% within a week, specifically manifested as:

• Average weekly return of 26%, median 14%
• Average 30-day return 141%, median 11%
• Average return of 512% over 60 days, median 27%

It is worth noting that in about one-third of the cases, BONK actually performed poorly, indicating that the good performance of the underlying public chain does not fully guarantee the excellent performance of meme coins. Most of the downturns occurred before the explosive rise of BONK at the end of 2023.

correlation analysis

BONK is usually correlated with its underlying public chain. However, during the periods when BONK performs particularly well, such as the fourth quarter of 2023, the first quarter of 2024, the fourth quarter of 2024, and in April of this year, this correlation often weakens.

( Key Points

BONK has a high beta coefficient against the underlying public chain over rolling periods of 30 days, 60 days, and 90 days, indicating a higher beta value from an absolute return perspective. This means that the price fluctuations of BONK usually far exceed those of the underlying public chain, making it a high-risk/high-reward asset.

Investors can view BONK as a leveraged bet on the underlying public chain, but without the liquidation risk that comes with leverage.

This analysis is not only applicable to BONK, but the same conditions also apply to the relationship between other “blue-chip” meme coins and their corresponding L1 assets, such as the relationship between PEPE and ETH.

On-chain Data Insights

In addition to understanding the performance of meme coins relative to their L1 public chains, on-chain data analysis can also provide quantitative assessments. These metrics can reveal the relative quality of the holder base and the strength of their beliefs.

) Token holders growth ### 90 days ###

The growth of token holders reflects the recent popularity and spread of the token. Different meme coins show significant differences in this metric, and the growth curve can reflect changes in market interest in the project.

( median and average holding amount

These indicators help understand the distribution of token holders’ holding sizes. Some meme coin communities are more centrally managed than others. For this type of coin, the median holding amount is often lower because a large number of small airdrop distributions are given to many wallets.

) Proportion of investors holding large amounts of funds

Analyzing the proportion of wallets holding values over $1000 and $100,000 can measure investors’ interest and faith in the project. A higher proportion of large holders typically indicates that the project has gained recognition from more seasoned investors.

large holder retention rate

This indicator examines the proportion of wallets that have ever held tokens worth over $100,000 and still hold more than 50% of their peak unit count. This helps measure the long-term confidence of large investors in the project.

Large Investor Trading Behavior

Analyzing the fund flow of wallets that have held tokens worth over $100,000 to decentralized exchanges can help understand whether large holders are increasing or decreasing their holdings. This provides important clues for determining market trends.

Other Considerations

In addition to on-chain data, liquidity and historical pullbacks are also important considerations. Research shows that only meme coins with sufficient trading liquidity and that have experienced multiple pullbacks of over 50% possess long-term investment value.

For tokens traded on mainstream trading platforms, the open interest is also a noteworthy indicator. High open interest indicates a high level of market participation, but it may also signify greater volatility risk.

Community and Faith Analysis

In the field of meme coins lacking fundamentals, community strength and investor belief often become decisive factors. High-quality meme projects typically possess the following characteristics:

• Resonant narrative and community slogan
• The strong belief and sense of community demonstrated by investors
• Obvious community leadership and coordination skills
• The ability to resonate with mainstream culture

It is worth noting that some outstanding communities are now starting to promote projects through more channels such as TikTok to reach a younger potential crypto user base. The most successful meme coin communities often have excellent marketing strategies.

Fair Value Assessment

How to determine whether to buy meme coins at “fair value”? An effective method is to analyze the relationship between the approximate value of the total cost basis of circulating tokens ### and the market value.

When the MVRV ratio ### market value/realized value ( is below 1, it indicates that holders are, on average, in an unrealized loss state, which often serves as a local bottom signal under bull market conditions.

For example, the implementation price of BONK is around $0.0002, while its current trading price is $0.0000145, which may indicate that it is a good entry price at the moment.

Technical Analysis Indicators

) Relative Strength Index ( RSI )

RSI helps assess whether the recent momentum of the token is in an overbought or oversold state:

• RSI approaching or below 30 indicates an “oversold” condition
• RSI close to or above 70 indicates an “overbought” condition.

Moving Average

Analyzing the position of the price relative to key moving averages can help determine the timing for buying. The ideal situation is to buy strong tokens when the price breaks through key support areas, provided there is confidence in the 3-6 month time frame.

( social media metrics

Google search trends and social media sentiment indicators can help assess changes in market attention towards projects, providing auxiliary reference for buy and sell decisions.

Macro Environment Impact

It is important to emphasize that meme coins are positioned at the extreme end of the risk spectrum. Bitcoin relies on liquidity conditions, and meme coins are even more so. Favorable liquidity and economic conditions, combined with a return of market risk appetite sentiment, are key prerequisites for allocating investments in meme coins.

Investment Framework Summary

Based on the above analysis, a complete meme coin investment framework should include:

1. Understand the value of certain meme coins ) high beta projects ### as a very small part of the investment portfolio.
2. Identify projects with a solid “foundation” through on-chain data.
3. Use indicators such as MVRV to measure “fair value”
4. Use technical indicators and the macro environment to determine the timing for buying.
5. Determine the selling timing based on indicators such as momentum and RSI.

It is important to recognize that no investment framework can be perfect. There are no easy returns in the world of investing, and excess returns are always accompanied by higher risks.

Nevertheless, establishing a systematic analytical framework will help investors make more rational decisions in the uncertain meme coin market.