Investment Logic and Analytical Framework of Memecoins

In the cryptocurrency market, memecoins, as a high-risk, high-reward asset class, have attracted the attention of many investors. This article will explore why certain memecoins may become a small part of an investment portfolio, as well as how to analyze and assess these types of assets.

Beta Characteristics of Memecoins

Some memecoins have a high beta coefficient relative to the main assets of their ecosystem. This means they can provide a leveraged effect on the underlying assets without using actual leverage. For example, a small allocation to a cultural coin in a certain ecosystem can achieve an amplification effect on the main coin of that ecosystem while avoiding liquidation risk.

By observing the point where the 30-day beta exceeds the 90-day rolling beta, we can discover some interesting patterns. When this occurs, the average 30-day and 60-day returns of certain memecoins may reach significant levels.

However, it is important to note that the positive performance of the underlying assets does not guarantee the outstanding performance of memecoins. While memecoins are generally correlated with the main assets of their ecosystem, this correlation often weakens during periods of strong memecoin performance.

On-chain Data Analysis

In addition to price performance, on-chain data analysis is also an important method for assessing the quality of memecoins. Here are some key indicators:

1. Growth of Token Holders: Reflects the recent popularity and spread rate of the Token.

2. Median and Average Holdings: Helps understand the overall distribution and beliefs of Token holders.

3. Proportion of large holders: Analyze the percentage of wallets holding over $1000 and $100,000 as indicators of interest and belief.

4. Whale Retention Rate: Measures the long-term confidence of large holders.

5. Whale Trading Behavior: Analyzing the buying and selling behavior of large holders on decentralized exchanges.

In addition, sufficient trading liquidity and having experienced multiple significant pullbacks are also important factors to consider. For memecoins listed on major trading platforms, the open interest is also a noteworthy data point.

Community and Belief Factors

The success of memecoins is often closely related to the strength of their community. We should focus on the following points:

• Resonant storytelling and community slogans
• The strong belief and sense of belonging among community members
• Signs of community leadership and coordination skills
• Degree of integration with broader culture
• Community marketing capabilities, including promotion on emerging platforms like TikTok.

Value Assessment

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

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

2. Momentum Indicator:

   • RSI (Relative Strength Index): Helps determine whether an asset is in overbought or oversold conditions.
   • Moving Average: Analyze the position of the price relative to the key moving averages.

3. Google Search Trends: Reflecting the public's level of interest in this memecoin.

Macroeconomic Considerations

Memecoins, as high-risk assets, are highly dependent on the overall liquidity environment and market risk appetite. A favorable economic environment and the return of "animal spirits" are often key moments for allocating memecoins.

Conclusion

Investing in memecoins requires a comprehensive consideration of multiple factors, including their relationship with the underlying assets, on-chain data performance, community strength, value assessment, and the macro environment. Although this framework cannot guarantee investment success, it can help investors make more informed decisions in this market filled with risks and opportunities. Always remember that high returns often come with high risks, so caution should be exercised when investing in memecoins, and they should be regarded as a small part of an overall investment portfolio.