Memecoins Investment Analysis Framework

The Investment Value of Memecoins

Some memecoins have a high beta value against Layer 1 (L1) assets, which makes them an attractive investment choice. Taking BONK as an example, a small allocation can provide leverage to Solana without increasing leverage risk.

The signal we are focusing on is when the 30-day beta exceeds the 90-day rolling beta. When this happens, BONK's average 30-day and 60-day returns reach 124% and 413%, respectively.

The surge of BONK usually occurs simultaneously with SOL rising more than 5% within a week. In this case, the average return of BONK is as follows:

• 1 week average return 26%
• 30-day average return 141%
• 60 day average return 512%

It is important to note that in about 1/3 of the cases, BONK actually declines, which indicates that the performance of SOL does not fully guarantee the excellent performance of BONK.

BONK is usually positively correlated with SOL, but during outstanding periods for BONK, such as Q4 2023 and Q1 2024, this correlation often weakens.

On-chain Data Analysis

In addition to price performance, we will also analyze on-chain data to assess the quality of memecoins. Here are some key metrics:

1. Token holders increase (90 days )
2. Median and Average Holding
3. The proportion of holders with more than $1000
4. The proportion of holders with over $100k
5. Whale Retention Rate
6. Net Inflow/Outflow of Whales on DEX

These indicators can help us understand the relative quality and belief of the holder base.

Other Considerations

• Trading Liquidity
• Have you experienced multiple pullbacks of over 50%?
• The open interest of ( for Tokens traded on major trading platforms ).

Community and Faith Assessment

When evaluating the memecoin community, we focus on:

• Resonant narratives and community slogans
• Strong belief and sense of belonging
• Leadership and coordination skills
• Cultural Integration Degree
• Social media activities and promotion strategies

Fair Value Assessment

We primarily assess fair value by comparing value to market value using the ( MVRV ratio ). When the MVRV ratio is below 1, it may indicate that we are close to a local bottom.

Kinetic Analysis

In the absence of fundamentals, we will focus on:

• Relative Strength Index ( RSI )
• Moving Average
• Google Search Trends

Macroeconomic Environment

Memecoin investment heavily relies on favorable liquidity conditions and risk appetite sentiment. When considering an investment, it is essential to closely monitor the overall market environment.

Conclusion

This framework covers why to choose certain memecoins, how to identify strong projects, how to assess fair value, and when to buy and sell. While absolute success cannot be guaranteed, this systematic approach can help investors make more informed decisions in the risky memecoin market.