Written by: Michael Nadeau, Founder of The DeFi Report
Compiled by: Glendon, Techub News
Of the 20 best performing crypto assets this year, 14 are Memecoin projects, a statistic that is hard to ignore.
In this article, I’ll dive into how to identify Memecoins with potential and explain why I think the space will continue to show strong momentum as we approach the end of the year and into 2025.
Changing Perceptions of Memecoin
I was a little torn when writing this article because I know some readers have a visceral aversion to Memecoin. I understand because I have felt the same way.
Looking back at the last market cycle, I could barely stand Memecoin. In my opinion, projects like Dogecoin (DOGE) and Shiba Inucoin (SHIB) seemed to be making a mockery of the industry - which is undoubtedly unacceptable to a "purist" like me. After all, since I got involved in the cryptocurrency industry, I have been focusing on on-chain data and fundamental analysis. I think this industry is largely misunderstood, so I am committed to eliminating the noise. How do I do this? My method is simple: rely on data, analyze problems through simple and easy-to-understand frameworks, focus on business models and cash flow, and maintain absolute honesty.
However, Memecoin clearly does not meet these criteria of mine, so I have no good feelings towards them.
But about a year ago, when I bought my first Memecoin, BONK (which I still own), I changed my mind.
how so?
When I started looking into Bonk (BONK), I found that it had a strong community, many integrations in the Solana ecosystem, and the team was building something that made it impossible for me to ignore it.
Initially, it was gaining traction on Coinmarketcap, I kept hearing about it on podcasts, and I even met a Bonk representative at a Solana conference. It became clear to me that something interesting was happening, and I bought the token.
My argument is that BONK could become Solana’s “cultural token”, much like Shiba Inu (SHIB) is in the Ethereum ecosystem.
If this is true, then considering that in the last cycle, SHIB's market value on Ethereum once exceeded 40 billion US dollars, BONK may also have a lot of room for growth. After all, if you are optimistic about the development of a certain L1, it is undoubtedly a wise choice to look for tokens that may have high beta values for L1 assets. (Techub News Note: High beta value refers to assets with high risk and high returns.)
My opinion of Memecoin has changed since then. Of course, I am not advocating that all Memecoins are worth buying and holding as investments, but there are indeed some interesting things happening in this space.
Therefore, the purpose of writing this article is to hope that more readers can maintain an open and curious mind, "roll up their sleeves", follow the basic principles, and gain a deeper understanding of this field, rather than easily denying it.
Investing in the “cult” Memecoin
Recently, I have begun to have a clearer understanding of the fundamental analysis of cryptocurrency assets and networks. The opportunity for this change came from someone asking me what I thought of Solana in late December 2022. At that time, I couldn't give a clear answer from a fundamental perspective because Solana didn't have any fundamentals at that time. But before investing, I had done a lot of research.
“I just feel that Solana’s community atmosphere is very similar to Ethereum in December 2018 (when ETH trading price fell to $80). Through data analysis, I found that the key performance indicators also showed similar trends. At the same time, I can feel the power of the community, and after studying the core contributors, founding team, investors, etc., I found that although these people have made money, they seem to want to stay and stick to the end to ‘chew the hard bones’. So, my intuition tells me that it will make a comeback.”
This was my answer at the time.
But in reality, what I had done was identify a cult, though I didn’t fully understand that until I watched Murad Mahmudov’s talk at the Token 2049 conference.
When he compared Memecoin to a "cult," it suddenly dawned on me. Why?
Because my successful investments in the cryptocurrency field can almost be attributed to "cult-style investing."
Bitcoin, Ethereum, Solana, and Chainlink can all be considered a "cult". It can be said that the most powerful cryptocurrency networks (and assets) almost have the characteristics of a "cult".
Even technology companies like Apple, Tesla, and Barstool Sports have cult-like qualities.
As investors, our job is to identify these "cults".
Because the best brands all have cult-like followers, and the same is true for cryptocurrency networks, except that they prefer to call themselves "communities" rather than "cults." This reminds me of one of the reasons I firmly bet on Bitcoin in early 2020: I watched an interview with Paul Tudor Jones (legendary macro trader). In the interview, he talked about how Stanley Druckenmiller (founder of Duquesne Capital) told him: "The price of Bitcoin once fell from $20,000 to $3,000, but 80% of Bitcoin holders still hold on."
This is cult-like behavior, and it’s what we look for in crypto networks/investable assets, and it’s an important part of fundamental analysis. If you’re a value investor, this may sound a bit far-fetched, but in my opinion, it’s just the cold hard truth.
Memecoin Outperforms
Why did Memecoin perform so well? In my opinion, there are 5 key factors:
1. Retail investors fight back: Retail investors are tired of playing a rigged casino game with venture capital firms (VCs) - VCs have become accustomed to dumping tokens on retail investors at $8-10 billion valuations during the Series B round. That being said, I don’t think this can be entirely blamed on VCs, as lack of regulation and poor legal precedent/guidance have also contributed. However, VCs cannot build a "cult-like" community of users and evangelists with airdrops at high valuations. Therefore, retail investors have created their own casino and set their own rules of the game.
2. Token Potential: Currently, the market capitalization of altcoins is about $900 billion, and it is expected that $155 billion of tokens will be unlocked in the next 5 years. In comparison, Memecoin has a market capitalization of about $45 billion, of which the market capitalization of emerging Memecoin is about $10 billion. However, Memecoin has no unlocking period, retail investors can participate in the project early, and investors have witnessed DOGE reaching a market capitalization of $95 billion and SHIB reaching a market capitalization of over $40 billion in the last cycle. Note: I am using data science to identify "cabal coins" in order to distinguish between fair-issued tokens and scams or tokens that are more susceptible to manipulation by "insiders".
3. Social and belonging needs: People spend more and more time on the Internet. They feel lonely, worried about their financial future, and seek a sense of belonging. Memecoin just meets all the conditions. If you are a "baby boomer", it is crucial to understand the impact of the younger generation on the market, because they are gradually becoming the main force in the market.
4. The rise of the online gambling industry: Over the past three years, the online gambling industry has experienced significant growth and has now become an industry worth $85 billion, with an annual growth rate of 11.7%. Sports betting accounts for about half of the industry, and mobile betting is growing faster than offline betting. Memecoin is taking advantage of this trend and has a greater chance of success.
5. Changes in market perception: The market gradually realized that altcoins and Memecoins are actually selling the same thing - a casino ticket. To some extent, this has nothing to do with technology, it has always been about speculation (there is nothing wrong with this, and so does Wall Street). And Memecoin seems to be a better investment tool for retail investors.
So, how should we identify "excellent" Memecoin projects?
Analyzing and Identifying Cult-Like Memecoins
Although it may sound surprising, the similarities between my initial focus on Bitcoin and Ethereum when I first started investing in cryptocurrencies and my current focus on Memecoin are striking. For example:
Qualitative factors
Broad “addressable interest” (things people can support globally)
Strong community (via Crypto Twitter)
The community has held on despite the massive drop (avoid 99% of new projects and focus on market-tested tokens with a market cap of over $100 million)
The price target given by the community is extremely high
No unlock period
No venture capital firms (can buy on the market like everyone else)
A good narrative and a community slogan that resonates
Firm belief
Sense of belonging
A network of independent people willing to work on the project (evangelists)
Quantitative factors
Token holder growth rate (30, 60, 90 days)
Average holding time of token holders (based on when the token was last moved)
Percentage of holders who have not moved their tokens for more than 30 days, 60 days, 90 days, etc.
Percentage of token supply held by the top 10, 50, and 100 addresses
Median holder amount (USD)
Number of wallets holding $5,000 or more, $10,000 or more, $250,000 or more, and $1 million or more
Percentage of transactions made by wallets that previously traded less than 5 times on the DEX in the first week of the project (used to identify projects with large insiders)
Liquidity on decentralized exchanges (DEX) and its impact on prices
Listings on Centralized Exchanges (CEX)
The key here is to make relative comparisons between different tokens to determine the criteria for a “good” token.
What I like about Memecoin and why
Next, I will share some of the Memecoins I purchased and the results of my research. But please note that the price of these tokens has increased several times from when I bought them, and although I think they will be more expensive, please do your own research and do not take this as investment advice.
SPX6900
I think this coin has the potential to be among the top 25 assets by crypto market cap.
SPX6900 has a huge "addressable interest". Just like Dogecoin did well at first because a lot of people like dogs. This is a global market, and it's fun to make memes with them.
I think the SPX6900 also has strong global appeal with its slogans “Flip the stock market” and “Stop trading, believe in something”.
It’s reminiscent of Gamestop, but with far greater potential. Since the beginning of September, the SPX token holder community has grown 20-fold. The project’s Twitter account has added 25,000 followers in the past month, and every tweet is filled with “cult-like” comments.
And SPX also has a “cult leader” Murad who owns 2% of the supply and has vowed not to sell for a year (you don’t have to take his word for it, but his wallet has been revealed by the community, making it difficult to break his vow).
Additionally, numerous crypto whales have posted large buy orders on Twitter and similarly vowed not to sell for a year. This doesn’t mean we should believe them. But this is cult-like behavior that reminds me of the early days of Bitcoin.
GIGA
Similar to SPX6900, GIGA is also based on dog/cat iterations, with a very wide range of "addressable interests". "Gigachad" has been a hot topic on the Internet for many years. It originated from Reddit and 4chan and became popular for its combination of irony, humor, exaggerated ideals, lifestyle/fitness, exaggeration and irony. We know it already has broad appeal.
The token also has a growing Twitter account, strong on-chain signaling, a cult-like community, and fun memes. It’s also the token that Murad has been promoting (and holding a large amount of).
So, should we be worried about Murad's existence as an "insider"?
Maybe, but it’s not my main concern at the moment. Here’s why:
First, the best cryptocurrency projects (and this also applies to Memecoin) have a group of evangelists and storytellers. Murad is very talented in this area and has already developed a large following. His Twitter followers have jumped from 100k to 377k in 6 weeks, which is a clear positive sign.
Secondly, I appreciate Murad's approach. In addition to "shamelessly" promoting his investments, he also shares very clear and easy-to-understand arguments and provides a lot of useful data to support his ideas. Once again, investors need to look for cult-like communities. In fact, there are other influencers in the cryptocurrency space with large followings, but most of them are scammers, not transparent enough, and do not share data or arguments. But retail investors are smart, so I think they may choose transparent communicators like Murad.
POPCAT
This one is simple, it is profiting from the transition from dogs to cats. Although it sounds a bit funny, the data does show this trend. For me, investing in POPCAT is a hedging strategy for investing in BONK.
Additionally, POPCAT has a very strong community, good on-chain foundations, and strong momentum, making it likely to be the winning “cat coin.”
Risk factors
When dealing with Memecoin, never forget that you are under the shadow of "tail risk". Once again, please do your own research. (Techub News Note: Tail risk refers to major risks that may arise in extreme market conditions. The probability of such events occurring is very small, but once they occur, they may bring huge losses.)
Here are what I think are the main risks to watch out for when investing in Memecoin (in no particular order):
Regulatory risk: If the cryptocurrency industry can be well regulated, then this may mean that altcoins can get more room for innovation in token economic design, thereby generating returns for holders. This may affect the market's perception of value and drive investors to altcoin assets. However, I think it will still take some time for this to work, and it is not a huge risk at the moment.
Liquidity Risk: If Memecoins do not have sufficient liquidity, then the market value will be meaningless to them.
Large Holder Selloffs: Understand on-chain data to avoid Rug Pull scams.
Sentiment/Macro Shifts: Memecoin runs on sentiment and liquidity. So if there is a shift in inflation, geopolitical tensions, etc., it will affect cryptocurrencies (and Memecoin) first.
Attention Shift: Memecoin’s success depends heavily on public attention. Be aware that what’s popular today can be quickly replaced by a new narrative, especially for projects that have grown significantly (insiders take profits and move on to new opportunities).
Consensus view: Memes are becoming a consensus bet among cryptocurrency natives and require a constant influx of new users to maintain their vitality.
Conclusion and Final Thoughts
1. Things that do well early in a cryptocurrency cycle tend to do well later in the cycle. I think that may be the case with Memecoin this cycle.
2. Assets that are difficult to value often have room for growth beyond imagination. The reason is that once valuation can be performed through methods such as discounted cash flow (DCF), the price ceiling of the asset is determined. Assets that cannot be valued may have greater growth potential.
3. DOGE once reached a market capitalization of $95 billion, which provided an opportunity for new Memecoins, proving that Memecoins with mass appeal can also shine in the market.
4. Financial nihilism is real, and Memecoin is a vivid interpretation of this nihilism. They represent a bet on the uncertainty of financial markets and a way for investors to seek novelty and excitement.
5. Treat Memecoin rationally. If you have a strong interest or concern about Memecoin, then be sure to understand them in depth instead of being swayed by emotions.
6. I strategically chose memecoins that are traded on Solana because in my opinion, the Memecoin ecosystem on Solana is the most prosperous.
7. Does Memecoin have utility? Memecoin provides "C to C" services, that is, customer to customer. They represent values such as entertainment, community, and reduced loneliness (even though this sounds a bit sad). In a sense, the income of Memecoin is not achieved through traditional means, but through the capital appreciation of the token.
8. Memecoin is more suitable as a short-term trading tool rather than a multi-period investment target. Investors should be aware of this and formulate investment strategies accordingly.
9. I think if there is another market craze like the one we had during the altcoin season, there could be 25 (maybe even as many as 50) Memecoins that are in the top 100 crypto assets. Currently there are only 10, so there is still a lot of room for growth in the future.
10. Speaking from personal experience, I have had multiple conversations with several serious (institutional investors in the crypto space) about Memecoin. I think we are still in the early stages and the trend of Memecoin is likely to continue.
11. Finally, I want to emphasize that you should never invest more money than you can afford to lose. If you invest in Memecoin and it keeps you up at night, you have already lost. So, make sure you avoid this.
