Memecoins Investment Strategy Analysis

Memecoins, as a high-risk and high-reward asset class, have attracted the attention of many investors. This article will analyze the investment value and strategies of memecoins from multiple perspectives.

Beta Coefficient and Leverage Effect

Some memecoins have a higher beta coefficient relative to the native tokens of their respective public chains. Taking BONK from the Solana ecosystem as an example, it shows a high beta against SOL, meaning that the fluctuations of BONK usually far exceed those of SOL. This makes BONK a tool for leveraged betting on SOL without the liquidation risks associated with traditional leveraged trading.

When the 30-day rolling beta of BONK exceeds the 90-day rolling beta, it often indicates a good investment opportunity. In this case, the 30-day and 60-day average returns of BONK reached 124% and 413%, respectively.

It is worth noting that the explosive rise of BONK usually occurs simultaneously with a significant increase in SOL in the short term. When SOL rises more than 5% within a week, the average return of BONK is as follows:

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

However, the good performance of SOL does not guarantee the excellent performance of BONK. In about 1/3 of the cases, BONK will actually experience a decline.

The correlation between BONK and SOL is usually strong, but during periods when BONK performs prominently, such as Q4 2023 and Q1/Q4 2024, this correlation often weakens.

On-chain Data Analysis

On-chain data analysis can help us understand the quality and beliefs of the memecoin holder base. Here are a few key metrics for comparison:

1. Token holder 90-day growth rate
2. Median and Average Holding
3. The proportion of holders with a value exceeding $1000
4. Percentage of holders with holdings valued over $100,000
5. Large holders ( previously held >$100k) retention rate
6. The net inflow/outflow situation of large holders on DEX

These metrics help assess factors such as the popularity of memecoins, holder distribution, and the confidence of large investors.

Other Considerations

In addition to on-chain data, we also focus on the following aspects:

• Trading Liquidity
• Experienced multiple significant pullbacks
• Open interest volume ( for tokens listed on major trading platforms )

Community and Faith Factors

The success of memecoins is often closely related to the activity level and belief of their community. We focus on the following points:

• Potential interest from a global audience
• Resonant narratives and community slogans
• Strong belief and sense of belonging among community members
• Leadership and coordination skills
• Cultural Integration Level
• Social media promotion strategy ( such as TikTok )

Value Assessment

Evaluating the "fair value" of a memecoin can be done through the following methods:

1. MVRV Ratio ( Market Value/Realized Value ): When MVRV < 1, it may indicate a proximity to a local bottom.

2. Momentum Indicator:

   • RSI( Relative Strength Index ): An RSI close to 30 indicates oversold conditions, while a level near 70 indicates overbought conditions.
   • Moving Average: Analyze the position of the price relative to the key moving averages.
   • Google Search Trends: Reflect public interest.

Macroeconomic Environment

Memecoins, as high-risk assets, heavily depend on favorable liquidity conditions and risk appetite sentiment. Investors need to closely monitor the overall market environment.

Conclusion

Investing in memecoins requires a comprehensive consideration of multiple factors, including beta coefficients, on-chain data, community activity, value assessment indicators, and macroeconomic environment. Although these analyses cannot completely eliminate risks, they can help investors make more informed decisions in this high-risk, high-reward market.