Analysis of Investment Strategies in Memecoins

Why Pay Attention to Memecoins?

Beta Effect

Some memecoins have a high beta value against Layer 1 (L1) assets, which means they can provide leverage effects on L1 assets without increasing leverage risk. For example, a small allocation to certain memecoins can achieve leverage effects on L1 assets while avoiding liquidation risks.

The signal we are focused on is when the 30-day beta value exceeds the 90-day rolling beta value. When this occurs, the average 30-day and 60-day return rates of certain memecoins can be quite substantial.

It is important to note that the performance of L1 assets does not guarantee the excellent performance of the related memecoins. Nevertheless, memecoins usually maintain a certain correlation with their corresponding L1 assets, but during periods when memecoins perform exceptionally well, this correlation often weakens.

key points

• Certain memecoins have a high beta value against L1 assets over different time periods.
• Memecoins can be seen as leveraged bets on L1 assets without the risk of leveraged liquidation.
• This relationship applies to multiple "blue-chip" memecoins and their corresponding L1 assets.

On-chain Data Analysis

In addition to analyzing the performance of memecoins relative to L1 assets, on-chain data analysis can also provide important information about the relative quality and beliefs of the holders. Here are some key indicators:

• Token holder growth (90 days)
• Median and Average Holding
• The proportion of holders with assets over $1000 and $100k
• Whale Retention Rate
• The net inflow/outflow situation of whales on DEX

These indicators can help us understand the popularity of the Token, the beliefs of its holders, and the behavior of large holders.

Other Considerations

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

• Memecoin with sufficient trading liquidity
• A memecoin that has experienced multiple significant pullbacks
• Open interest ( for Tokens listed on major trading platforms )

Community and Belief

When evaluating memecoins, the following factors also need to be considered:

• Potential interest from a global audience
• Resonant narratives and community slogans
• The strong belief and sense of belonging among community members
• Signs of leadership and coordination skills
• Signs of cultural integration
• Social media promotion capabilities, especially targeting the young user demographic

Valuation

Comparison of Realized Value and Market Value (MVRV)

When the MVRV ratio is below 1, it indicates that holders are, on average, in an unrealized loss state, which may suggest that they are close to a local bottom.

Momentum Indicator

• Relative Strength Index (RSI): Helps determine whether a Token is in an overbought or oversold state
• Moving Average: Analyzing the relationship of price relative to key moving averages.
• Google Search Trends: Reflects the level of social interest in memecoins.

Macroeconomic Environment

Memecoins heavily rely on liquidity conditions and risk appetite sentiment. Favorable liquidity and economic environments, combined with a return of risk appetite sentiment, are key moments for allocating memecoins.

Investment Framework Summary

• Analyze the beta effect of memecoins on L1 assets
• Evaluate the fundamentals reflected by on-chain data
• Use indicators like MVRV to measure "fair value"
• Determine buying and selling opportunities based on macroeconomic environment and momentum indicators.

It is important to note that investing in memecoins still carries high risks. This framework is designed to help investors make more informed decisions in the memecoin market, but it cannot completely eliminate investment risks.