Memecoins Investment Strategy Analysis

The Investment Value of Memecoins

Some memecoins have a high beta value against Layer 1 (L1) assets, meaning they can provide leverage effects on L1 assets without increasing leverage risk. For example, a small allocation to cultural coins in the Solana ecosystem can achieve a leverage effect on SOL while avoiding liquidation risk.

The signal we are focusing on is when the 30-day beta value exceeds the 90-day rolling beta value. In this case, the average 30-day and 60-day return rates of the memecoin are 124% and 413%, respectively.

Price data shows that changes in risk appetite patterns typically happen quickly, and memecoins can significantly outperform in a short period. This highlights the importance of buying at the right time.

The explosion of memecoins usually occurs simultaneously with their corresponding L1 assets rising by more than 5% within a week. However, the performance of L1 assets does not fully guarantee the excellent performance of memecoins.

Memecoins are usually highly correlated with their L1 assets. However, during periods when memecoins perform exceptionally well, this correlation often weakens.

In general, memecoins have a high beta characteristic relative to L1 assets, with their price fluctuations often exceeding those of L1 assets, making them a high-risk, high-return asset. We consider it a leveraged bet on L1 assets, but without the risk of leveraged liquidation.

On-chain Data Analysis

In addition to price performance, we also use on-chain data for quantitative analysis to understand the quality and conviction of the holder base.

Mainly focus on the following indicators:

1. Token holder 90-day growth rate
2. Median and Average Holdings
3. The proportion of holders with more than $1000 and $100k
4. The proportion of wallets with a retention rate of giant whales ( that once held >$100k and still hold more than 50% of their peak )
5. Net Inflow/Outflow of Whales to DEX

In addition, we only focus on memecoins that have sufficient trading liquidity and have experienced multiple pullbacks of over 50%. For tokens traded on major exchanges, we will also pay attention to the open interest.

Community and Faith Factors

In addition to quantitative data, we also need to focus on the following qualitative factors:

• Potential audience with global appeal
• Resonant narratives and community slogans
• Strong belief and sense of belonging in the community
• Leadership and Coordination
• Cultural Penetration
• Marketing capabilities, such as engaging young users through TikTok

Value Assessment

There are mainly two methods to assess the "fair value" of memecoins:

1. MVRV ratio ( market capitalization / realized value ) When MVRV < 1, it indicates that the average holder is in an unrealized loss state, possibly close to a local bottom.

2. Momentum Indicator

   • RSI: Close to 30 indicates oversold, close to 70 indicates overbought
   • The position of the price relative to the key moving average line
   • Google search trends and other social sentiment indicators

Macroeconomic Factors

Memecoins are highly dependent on favorable liquidity and economic conditions, as well as the return of "risk appetite" sentiment. These macro factors must be considered when contemplating allocations.

Conclusion

In summary, investing in memecoins requires a comprehensive consideration of the following factors:

• The beta relationship with L1 assets
• On-chain data metrics
• Community and marketing capabilities
• Valuation Method
• Macroeconomic Environment

Nevertheless, memecoins still belong to extremely high-risk assets, and investors should approach them with caution and reasonably control their positions.