Memecoins Investment Framework: A Data-Driven Approach to Analysis

Why Consider Investing in Memecoins?

Beta Coefficient Value

Some memecoins are compelling mainly because they have a high beta coefficient for Layer 1 (L1) assets. To put it simply, an appropriate allocation to memecoins, such as cultural tokens ( BONK)Solana ecosystems, can provide leverage on L1 assets without using actual leverage ( avoid the risk ) of being liquidated.

The key indicator we look for is when the 30-day rolling beta( pink line ) more than the 90-day rolling beta( red line ) most recently on April 1. Historical data shows that when this signal emerged, BONK achieved an average return of 124% and 413% over the next 30 and 60 days ( with a median of 45% and 57% ), respectively.

Observing the price relationship between BONK and SOL, it can be found that changes in market risk appetite often come swiftly, and BONK can significantly outperform the market in the short term. This highlights the importance of accurately grasping the entry point for investment.

The explosive rise of BONK usually occurs simultaneously with SOL rising over 5% in a week. In this case, the return performance of BONK is:

• Weekly average return of 26%, median 14%
• 30-day average return 141%, median 11%
• 60-day average return 512%, median 27%

It’s worth noting that about a third of the time, BONK will actually fall, suggesting that a good performance of SOL does not guarantee that BONK will necessarily rise. However, this situation mainly occurred before BONK ushered in explosive growth at the end of 2023.

Correlation Analysis

BONK generally maintains a correlation with SOL. However, this correlation tends to wane during periods when BONK has been particularly outperforming (2023 Q4, Q1 2024, Q4 2024, and ) April this year.

Key takeaways:

BONK shows a high beta value against SOL over rolling periods of 30 days, 60 days, and 90 days, with a higher beta value from an absolute return perspective. This means that the price volatility of BONK usually far exceeds that of SOL, making it a high-risk/high-reward asset.

We view BONK as a leveraged bet on SOL without having to bear the liquidation risk of actual leveraged operations.

Although we use BONK/SOL as a data example, the same pattern also applies to the relationship between other “blue chip” memecoins and their L1 assets, such as PEPE/ETH.

On-chain Data Analysis

In addition to understanding the performance of memecoins relative to their L1 assets, on-chain data analysis can provide quantitative insights.

These data can reveal the underlying quality and strength of belief of the holders. Here is a comparative analysis of several “blue-chip” memecoins, looking for abnormal performance:

Token holders growth (90 days )

The growth data of token holders reflects the recent popularity and spread speed of the token.

Median vs. Average Holdings

This metric helps us understand the median and average holdings of token holders, reflecting the strength of holders’ beliefs. It’s worth noting that some memecoin communities are more centrally managed. The median holdings of these tokens tend to be low due to the large number of small airdrops distributed to numerous wallet addresses.

Proportion of holdings worth over $1000

This metric further demonstrates the quality of the holder base. We hope to see a higher proportion of wallets holding tokens worth over $1000 as an indicator of interest and belief.

The proportion of holdings valued over $100,000

This provides us with the relative interest and belief strength of large holders in the token, compared to the total number of holders.

Large Holder Retention Rate

Through this indicator, we analyze the proportion of wallets that have held more than $100,000 worth of tokens and still retain more than 50% of their peak unit count, excluding the interference caused by price fluctuations.

This helps to measure the strength of belief of the largest holders.

Large Holders: DEX Net Inflow/Outflow

We filter all wallets that have ever held tokens worth more than $100,000 and analyze the fund flows of these wallets to decentralized exchanges.

This can reflect whether the largest holder is increasing their holdings or exiting the project.

Other Considerations

Apart from on-chain data, we only focus on memecoins that have sufficient trading liquidity and have experienced multiple pullbacks of over 50%.

It is important to note that our data only analyzes on-chain activities and does not include tokens held by centralized trading platforms, such as BONK, which has about 20% on centralized platforms.

For tokens traded on major exchanges, we prefer to look at open contract volume data, mainly sourced from various trading platforms.

Community and Belief Analysis

This part involves more crypto-native intuitive judgments, including monitoring social media activity and mood changes.

We tend to filter through the “potential audience interest” of memecoins. For example, it must be a theme that can be understood and accepted by a global audience, such as the “disrupting the stock market” concept of SPX6900— it may sound ridiculous, but it has the potential to attract attention and form a community movement.

The qualities we are looking for include:

• Engaging quality narratives and community slogans. No need for your personal agreement, just see others accepting it.
• The strong beliefs and sense of belonging expressed by community members can transform ordinary holders into passionate advocates (.
• Signs of leadership and coordination ) as observed in projects like BONK, SPX6900, and Giga (
• Signs of cultural integration ) Pepe Meme is a typical example (

We have noticed that some communities are now promoting projects through short video platforms to reach a younger potential cryptocurrency user base.

The most successful memecoin communities are often skilled in marketing.

Fair Value Assessment

How to determine whether to enter at “fair value”?

We believe the clearest approach is to analyze the relationship between the proxy metric of the cost basis of all tokens in circulation ) and the market value of the realized value (.

When the MVRV ratio is below 1, it indicates that holders of ) are, on average, in an unrealized loss state—this may suggest we are approaching a local bottom, assuming bullish market conditions will persist.

Taking BONK as an example, its current implementation price is approximately $0.0002. In analysis, the trading price of this token is $0.0000145 - this may indicate a good entry price point.

*It is important to note that the price calculation does not take into account the token supply held by the trading platform. According to data estimates, approximately 20% of the BONK supply is held on centralized trading platforms.

Momentum indicator

In the absence of fundamentals, another way to assess “fair value” is to analyze momentum indicators.

Relative Strength Index (RSI)

RSI helps us determine whether a token is overbought or oversold in terms of recent momentum.

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

Moving Average

Another way to analyze recent momentum is to observe the position of the price relative to key moving averages. We tend to buy strong assets when the price breaks through key support areas, provided we have confidence in a 3-6 month time frame.

Search Trends

Analyzing search trends and other social sentiment indicators can help us determine the timing for buying/selling.

Liquidity Cycle and Macroeconomic Environment

It must be emphasized that memecoins are at the far end of the risk spectrum. It is well known that Bitcoin relies on liquidity conditions, and memecoins are even more sensitive to this. Favorable liquidity and economic environment, combined with a return of “risk appetite” sentiment and “animal spirits,” are key prerequisites for allocating memecoins.

Summary Thoughts

In summary, we have constructed an investment framework that includes the following elements:

• Why certain memecoins( with high beta) are suitable as a very small part of the investment portfolio
• How to identify memecoins( on-chain data ) with strong “fundamentals”.
• How to measure “fair value” ( MVRV )
• When to buy ( turning point/macroeconomic/momentum )
• When to sell ( Momentum/RSI )

Of course, this does not mean that the framework is absolutely reliable. There are no easy returns in the investment field. Excess returns are inevitably accompanied by higher risks.

Nevertheless, having a systematic approach can still help navigate better in the chaotic world of memecoins.