Memecoins: High Risk and High Reward Investment Options

Memecoins, as a high-risk, high-reward asset class, are attracting increasing attention from investors. This article will explore why certain memecoins may become a small part of an investment portfolio and how to evaluate and select such assets.

The Appeal of Memecoins

Memecoins have a higher beta coefficient for certain L1 assets, which means they can provide leverage effects on L1 assets without actually using leverage. Taking a cultural coin from a certain ecosystem as an example, a small allocation to it can yield potential high returns while avoiding liquidation risks.

Data shows that when the 30-day beta of the cultural coin exceeds the 90-day rolling beta, its 30-day and 60-day average return rates are 124% and 413%, respectively. This highlights the importance of buying at the right time.

It is important to note that although the performance of cultural tokens is somewhat related to their corresponding L1 assets, it cannot be guaranteed to outperform them. During periods when cultural tokens perform well, the correlation between the two often weakens.

On-chain Data Analysis

In addition to price performance, on-chain data analysis can also provide important references for evaluating memecoins:

• The growth of token holders reflects recent popularity.
• The median and average holdings reflect the beliefs of the holders.
• The ratio of large holders ( > $1000 and > $100k ) reflects the investor structure.
• The retention rate of large whales and the net inflow/outflow of DEX reflect the behavior of large holders.

In addition, factors such as trading liquidity and open interest are also worth paying attention to.

Community and Faith Factors

High-quality memecoins often possess:

• Engaging narratives and slogans
• Strong sense of community belonging
• Good leadership and coordination
• Deeply embedded in culture

Some communities are starting to expand their influence through platforms like TikTok.

Valuation and Entry Timing

The MVRV ratio can be used to evaluate entry timing with the formula ( market value / realized value ); a value below 1 may indicate proximity to a local bottom.

Momentum indicators such as RSI and moving averages can also be used to determine the timing for buying/selling. Social sentiment indicators like Google Trends also have reference value.

Macroeconomic Factors

Memecoins are extremely sensitive to liquidity conditions. A favorable liquidity environment and a return of risk appetite are key to allocation.

Conclusion

Although there is no foolproof investment framework, a systematic approach can help investors make more informed decisions in this high-risk area. Memecoins, as a tiny part of a portfolio, may bring excess returns to some investors, but they also come with higher risks.