Memecoins Investment Strategy Analysis

Memecoins, as a small part of a cryptocurrency portfolio, have a unique appeal. They often exhibit a high beta coefficient towards Layer 1 (L1) assets, providing leverage effects on L1 assets without increasing leverage risk.

Taking BONK as an example, when its 30-day beta exceeds the 90-day rolling beta, significant short-term gains often occur. The surge of BONK typically coincides with SOL rising more than 5% within a week, averaging a 26% return for the week and a 141% return over 30 days.

There is a correlation between BONK and SOL, but this correlation often weakens when BONK performs outstandingly. This makes BONK a high-risk/high-reward betting method on SOL.

In addition to price performance, on-chain data analysis can also provide valuable insights. We focus on metrics such as holder growth, median and average holdings, the proportion of large holders, and whale retention rates to assess the quality and conviction of the holder base.

Other considerations include trading liquidity, the number of significant pullbacks experienced, and the volume of open contracts. Community engagement and marketing capabilities are also important indicators, as high-quality memecoin projects often have resonant narratives and strong community cohesion.

Evaluating the "fair value" of a memecoin can be done through the MVRV ratio, which is the ratio of market value ( to realized value ). When MVRV is below 1, it may indicate proximity to a local bottom. Momentum indicators like RSI and moving averages also help in determining the timing for buying and selling.

It is worth noting that memecoins are high-risk assets, and their performance is highly dependent on favorable liquidity conditions and risk appetite sentiment. Investors need to take into account multiple factors and establish a systematic investment framework to achieve relatively stable returns in this uncertain market.