Memecoins Investment Strategy Analysis

Memecoins, as a special category within the cryptocurrency ecosystem, have attracted the attention of many investors. This article will analyze the investment potential and strategies of memecoins from multiple perspectives.

Beta Effect

Some memecoins have a high beta coefficient relative to the Layer 1 assets of their respective blockchains. This means that investors can achieve leveraged-like effects by moderately allocating memecoins without actually using leverage. Taking the cultural coins of the Solana ecosystem as an example, when their 30-day beta exceeds the 90-day rolling beta, significant increases tend to occur.

Data shows that in this case, the average 30-day and 60-day return rates of the cultural coin reached 124% and 413%, respectively. However, it is important to note that this high beta characteristic means that the price fluctuations of memecoins typically far exceed those of their corresponding Layer 1 assets, thus presenting a higher risk.

Correlation Analysis

Memecoins and their corresponding Layer 1 assets often show a strong correlation. However, during periods when memecoins perform exceptionally well, this correlation tends to weaken. This phenomenon has been evident in the fourth quarter of 2023, the first quarter and fourth quarter of 2024, as well as in April of this year.

On-chain Data Analysis

On-chain data provides us with important indicators to evaluate the quality of memecoins:

1. Growth of Token Holders: Reflects recent popularity and spread speed.
2. Median and Average Holding: Reflects the strength of holders' beliefs.
3. Proportion of large holders: Measures the interest and confidence of significant investors.
4. Whale Retention Rate: Assessing the long-term belief of the largest holders.
5. Whale Trading Behavior: Analyze whether large holders are increasing their positions or exiting.

In addition, trading liquidity and price volatility are also important considerations. For memecoins listed on mainstream trading platforms, the open interest is also worth paying attention to.

Community and Faith

The success of memecoins largely depends on the strength of their community and cultural influence. High-quality memecoins projects typically possess the following characteristics:

• Resonant narratives and slogans
• Strong belief and sense of belonging among community members
• Clear leadership and coordination skills
• Close integration with pop culture
• Good at using social media for promotion

Value Assessment

Evaluating the "fair value" of memecoins can be approached from the following aspects:

1. MVRV Ratio: When the ratio of realized value to market value is below 1, it may indicate a potential local bottom.

2. Momentum Indicator:

   • RSI( Relative Strength Index ): helps to determine whether the market is in an overbought or oversold condition.
   • Moving Average: Analyzes the price movement relative to key support levels.

3. Social Sentiment: Pay attention to indicators such as Google search trends to understand the changes in public interest in this memecoin.

Macroeconomic Environment

Memecoins are extremely sensitive to liquidity conditions and overall market sentiment. A favorable economic environment and a return of investor risk appetite are important catalysts for the rise of memecoins.

Investment Framework

In summary, a complete investment framework for memecoins should include the following elements:

• Understand the high beta characteristics of memecoins and their positioning in the investment portfolio.
• Using on-chain data to identify quality memecoins
• Use indicators like MVRV to assess "fair value"
• Seize the right entry opportunity ( considering the macro environment and momentum indicators )
• Set a reasonable exit strategy

Nevertheless, investing in memecoins still carries a high level of risk. Investors should proceed with caution, manage their positions wisely, and implement proper risk management.