Meme Coin Investment Strategy: Beta, On-Chain Data and Timing the Investment

Why choose Meme coin?

Beta Effect

Some meme coins are attractive because they have a high beta coefficient regarding the underlying public chain (Layer 1) assets. In simple terms, appropriately allocating assets like BONK(, which is a representative meme coin of the Solana ecosystem, can achieve leverage effects on L1 assets without using actual leverage ) and avoiding liquidation risks (.

The key signal we need to pay attention to is when the 30-day beta) pink line( exceeds the 90-day rolling beta) red line(—this last occurred on April 1st. When this happens, the average 30-day and 60-day returns for BONK reach 124% and 413% respectively, with medians of 45% and 57%).

From the price comparison between BONK and SOL, it can be observed that the shift in market risk appetite often happens very quickly, and BONK can significantly outperform the market in a short period. This emphasizes the importance of buying at the right turning point.

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

• 1-week average return 26%, median 14%
• 30-day average yield 141%, median 11%
• 60-day average return 512%, median 27%

It is worth noting that in about 1/3 of the cases, even if SOL rises, BONK will fall – indicating that the performance of SOL does not fully guarantee the excellent performance of BONK. However, this situation mainly occurred before the explosive rise of BONK at the end of 2023.

( Correlation Analysis

BONK is usually correlated with SOL. However, during periods when BONK performs particularly well, such as the fourth quarter of 2023, the first quarter of 2024, the fourth quarter of 2024, and this April ), this correlation often weakens.

key points

BONK has a high beta value against SOL over rolling periods of 30, 60, and 90 days, and from an absolute return perspective, the beta is even more pronounced. This means that the fluctuations of BONK typically far exceed those of SOL—making it a typical high-risk/high-return asset.

We can view BONK as a leveraged bet on SOL, but without the liquidation risks associated with traditional leveraged trading.

Although we use BONK/SOL as an example for data analysis, the same principle applies to other "blue chip" meme coins and their relationship with underlying on-chain assets, such as PEPE/ETH.

On-chain Data Analysis

In addition to understanding the performance of meme coins relative to their underlying public chains, on-chain data analysis is also an important tool for quantitative assessment, which can help us understand the quality of the holder base and the strength of belief.

( holder growth )90 days ###

The growth rate of token holders reflects the recent popularity and spread speed.

holding distribution

The median and average holdings help us understand the level of conviction among Token holders. Some meme coin communities are more centralized in their management, and the median holdings of these Tokens tend to be lower, primarily due to a large number of small airdrops distributed to numerous wallet addresses.

( Proportion of large holders

• Percentage of holders with a value >$1000: This metric provides a perspective on the holder base. A higher proportion of wallets holding over $1000 usually indicates stronger community interest and belief.

• Percentage of holders with value >$100k: This reflects the relative interest and belief of large holders in the Token.

) Whale Behavior Analysis

• Whale Retention Rate: Analyzes the proportion of wallets that once held value >$100k and still maintain a peak unit count of over 50%, to assess the conviction of the largest holders.

• Whale DEX Activity: Investigate the net inflow/outflow of large holders ### > $100k ### on decentralized exchanges, and understand whether these key players are accumulating or exiting.

Other Key Factors

Apart from on-chain data, we only focus on those meme coins that have sufficient trading liquidity and have experienced multiple pullbacks of over 50%.

It is important to note that our data only analyzes on-chain activities and does not include tokens held by centralized trading platforms, such as BONK, which is approximately 20% on centralized platforms.

For tokens traded on major exchanges, the open interest is another indicator worth paying attention to.

Community and Faith Factors

In meme coin evaluations, the native intuition of crypto begins to play a role, which involves monitoring social media activity and sentiment.

We filter meme coins that have "potential audience interest", which are concepts that can be accepted globally, such as the "disrupting the stock market" theme of SPX6900—sounds a bit absurd, but it can indeed attract attention and form community movements (.

The key elements we are looking for:

• Resonant narratives and community slogans: You don't have to agree with their views, just see their appeal to others.
• Strong belief and sense of belonging in the community: this can transform holders into project promoters.
• Leadership and coordination: Characteristics exhibited by meme coins like BONK, SPX6900, and Giga.
• Degree of cultural integration: For example, Pepe Meme has become a phenomenon in internet culture.

Recent trends show that some communities are starting to promote projects through TikTok to reach a younger potential crypto user base. The most successful meme coin communities are usually outstanding marketers.

Fair Value Assessment

How to determine if you are buying at "fair value"? The most direct method is to understand the relationship between the cost basis of the circulating Token with realized value ) and the market value.

When the MVRV### market value to realized value( ratio is below 1, it indicates that the average holder is in an unrealized loss state—this may suggest that we are nearing a local bottom, provided that the bullish market environment continues.

In the case of BONK, the realized price is currently $0.0002. At the time of writing, the token is trading at $0.0000145 – suggesting that this could be a good entry price.

*Note that the realized price calculation does not take into account the Tokens held by the trading platform. According to statistical estimates, about 20% of the BONK supply is on major centralized trading platforms.

Momentum Indicator

In the absence of traditional fundamentals, technical momentum indicators have become an alternative method for assessing "fair value."

) Relative Strength Index ( RSI )

RSI helps us understand the recent momentum state of the Token:

• An RSI close to or below 30 indicates an "oversold" condition.
• RSI close to or above 70 indicates an "overbought" condition.

( moving average

Another way to analyze recent momentum is to observe the position of the price relative to key moving averages. The ideal buying opportunity is when the price breaks through key support areas, provided there is confidence in the medium-term trend over the next 3-6 months.

) social indicators

Google search trends and other social sentiment indicators can also help determine the best buy/sell timing.

Macroeconomic Environment and Liquidity Cycle

It must be emphasized that meme coins are at the far end of the risk spectrum. As is well known, Bitcoin is highly dependent on the liquidity environment, and meme coins are even more sensitive to it. Favorable liquidity conditions and a macroeconomic environment, combined with the return of "risk appetite" sentiment and market "animal spirits," are key factors in determining whether to allocate to meme coins.

Investment Framework Summary

Considering the above factors, we can derive a meme coin investment framework:

• Understand why specific meme coin ( high beta ) can serve as a very small part of an investment portfolio.
• How to identify meme coins with strong "fundamentals" through on-chain data
• How to use indicators like MVRV to measure "fair value"
• Identify the best buying opportunities ### turning points/macroeconomic environment/momentum (
• Seize the right selling opportunity ) Momentum/RSI overbought ###

Of course, this framework is not perfect. There are no easy returns in the investment world, and excess returns always come with higher risks.

Nevertheless, having a systematic evaluation method should help investors better grasp opportunities and risks in this chaotic market of meme coins.