Investment Strategies and Analysis Framework for Memecoins

Why choose Memes?

Memecoins have a high beta value against Layer 1 assets, making them an interesting investment choice. Moderately allocating certain memecoins can achieve a leverage effect on L1 assets without increasing leverage risk.

The signal we are focusing on is when the 30-day beta exceeds the 90-day rolling beta. In this case, the average 30-day and 60-day returns of certain memecoins can reach 124% and 413% respectively, with medians of 45% and 57% (.

This shift in risk appetite usually happens quickly, and memecoins can significantly outperform the market in a short period. Therefore, buying at the right time is crucial.

The explosion of memecoins usually occurs simultaneously with their corresponding L1 assets rising by more than 5% within a week. In this case, the average returns of certain memecoins are as follows:

• 1 Week Return: Average 26%, Median 14%
• 30-day return: Average 141%, Median 11%
• 60-day return: average 512%, median 27%

It is important to note that in about 1/3 of cases, memecoins actually decline, indicating that the performance of L1 assets does not fully guarantee the excellent performance of memecoins.

Key Points

• Memecoins have a high beta value for L1 assets over rolling periods of 30, 60, and 90 days, with a higher beta value from an absolute return perspective.
• This means that the price fluctuations of memecoins are usually much greater than those of their corresponding L1 assets, making them high-risk/high-reward assets.
• We view certain memecoins as leveraged bets on L1 assets, but without the liquidation risks associated with leverage.
• This model is applicable not only to a specific memecoin but also to other “blue-chip” memecoins and their relationship with L1 assets.

On-chain Data Analysis

In addition to analyzing the performance of memecoins relative to their L1 assets, on-chain data analysis is also an important tool. It helps us understand the relative quality and conviction of the holder base. Here are some key metrics:

1. Token holders growth )90 days (: Reflects the recent popularity and spread speed of the Token.

2. Median and Average Holdings: Helps understand the overall sentiment of Token holders. Certain memecoin communities are more centralized in their management, which may lead to a lower median holding.

3. Proportion of holders with holdings >$1000: As an indicator of interest and belief, we hope to see a high proportion of wallets holding over $1000.

4. Proportion of holders with >$100k: reflects the relative interest and belief of large holders in the Token.

5. Whale Retention Rate: Check the wallets that once held >) Token, and measure the proportion of those still holding more than 50% of its peak unit count, assessing the belief of the largest holders.

6. Whale DEX Net Inflow/Outflow: Analyzing whether large holders are buying more Tokens or exiting the project.

Other Considerations

• 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 pay attention to the open contract volume.
• Community and faith factors are also important, including monitoring social media activities and sentiments, analyzing the potential audience interests of the project, etc.
• We seek resonant narratives, strong community beliefs, good leadership and coordination, as well as signs of the project integrating into the culture.

Valuation and Buying Timing

• Achieving a comparison between value and market value $100k MVRV ratio ( can help determine whether to buy at “fair value.” When the MVRV is below 1, it may be close to a local bottom.
• Momentum indicators such as RSI and moving averages can help determine the timing for buying and selling.
• Google search trends and other social sentiment indicators are also useful references.

Summary

Investing in memecoins requires considering multiple factors:

1. High beta value for L1 assets
2. Powerful On-Chain Data Metrics
3. Reasonable Valuation ) MVRV (
4. Appropriate Buying Timing ) Turning Point / Macroeconomic Environment / Momentum (
5. Appropriate Selling Timing ) Momentum/RSI (

It is important to note that memecoins are high-risk assets, and their performance is highly dependent on favorable liquidity and economic conditions. This framework can help investors make better decisions in the memecoins market, but it cannot eliminate all risks. Excess returns are always accompanied by higher risks.