How to identify and invest in 'cult-style' Memecoin? An article exploring the potential, advantages, and risks of Memecoin

Authored by Michael Nadeau, the Decentralized Finance Report founder

Compiled by: Glendon, Techub News

Among the top 20 performing cryptocurrency assets this year, 14 of them are Memecoin projects, a data that is hard to ignore.

In this article, I will delve into how to identify potential Memecoins and explain why I believe that as the end of the year approaches and 2025 arrives, the field will continue to show strong momentum.

Change your perspective on Memecoin

At the beginning of writing this article, I was a bit conflicted. Because I know that some readers have an instinctive resistance to Memecoin. I can understand that because I have had the same feeling about it.

Looking back at the last market cycle, I could hardly bear Memecoin. In my opinion, projects like Dogecoin (DOGE) and Shiba Inu (SHIB) seem to be mocking this industry - which is undoubtedly unacceptable for ‘purists’ like me. After all, since I entered the cryptocurrency industry, I have been focusing on on-chain data and Fundamental Analysis. I believe that this industry has been 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 a simple and understandable framework, follow business models and cash flow, while maintaining absolute honesty.

However, Memecoin obviously does not meet my criteria, so I have no affection for them.

But about a year ago, when I bought my first Memecoin - BONK (still holding to this day), I changed my perspective.

Why is that?

When I started researching Bonk (BONK), I found that it has a strong community and many integrations in the Solana ecosystem, and the team is also building something, which made it impossible for me to ignore.

At first, it caught a lot of attention on Coinmarketcap, and I often heard its name on podcasts. I even met representatives of Bonk at a Solana conference. So, I was aware that some interesting things were happening, and then I bought this Token.

My argument is that BONK could potentially become Solana’s ‘cultural token’ just like Shiba Inu (SHIB) in the Ethereum ecosystem.

If this is true, then considering that in the previous cycle, SHIB’s Market Cap on the ETH network once exceeded $40 billion, BONK may also have a significant pump space. After all, if you are optimistic about the development of a certain L1, then looking for tokens that may have a high beta value for L1 assets is undoubtedly a wise choice. (Techub News note, high beta value refers to assets with high risk and high return.)

Since then, my view of Memecoin has changed. Of course, I am not advocating that all Memecoins are investment assets worth buying and holding, but there are indeed some interesting things happening in this space.

Therefore, my purpose in writing this article is to hope that more readers will remain open and curious, and “roll up their sleeves” and follow the basic principles to understand this field deeply, rather than simply denying it.

Investing in ‘cult’ Memecoin

Recently, I have gained a clearer understanding of Fundamental Analysis of Crypto Assets and networks. The catalyst for this shift came when someone asked me at the end of December 2022 how I view Solana. At that time, I couldn’t provide a definite answer from a fundamental perspective because Solana had no fundamental analysis to speak of. However, I had already done extensive research before investing.

This was my answer at the time.

But in fact, what I did was to identify a “cult,” but I didn’t fully realize this until I watched Murad Mahmudov’s speech at the Token 2049 conference.

When he likened Memecoin to a “cult,” I suddenly saw the light. Why is this so?

Because of my successful investments in the Crypto Assets field, almost all of them can be attributed to ‘cult-like investments’.

BTC, ETH, Solana, and Chainlink can all be considered a kind of “cult,” and it can be said that the most powerful cryptocurrency networks (and assets) almost have the characteristics of a “cult”.

Even tech companies such as Apple, TSL, and Barstool Sports have “cult-like” qualities.

As investors, we need to identify these “cults”.

Because the best brands without exception have ‘cult-like’ followers, the Cryptocurrency network is no different, except they tend to refer to themselves as ‘communities’ rather than ‘cults’. This reminds me of one reason why I firmly bet on BTC at the beginning of 2020: I watched an interview with Paul Tudor Jones (a legendary macro trader). He mentioned in the interview that Stanley Druckenmiller (founder of Duquesne Capital) told him, ‘BTC’s price fell from $20,000 to $3,000 at one point, but 80% of BTC holders still insisted on holding.’

This is cult-like behavior, and it is what we are looking for in the Cryptocurrency network/investable assets, and it is also an important part of Fundamental Analysis. If you are a value investor, you may find my point of view a bit far-fetched. But in my opinion, this is a cold hard fact.

Memecoin performs well

Why is Memecoin performing well? In my opinion, there are 5 key factors:

1. The counterattack of retail investors: retail investors are tired of playing a manipulated casino game with venture capital firms (VC)-venture capital firms are used to dumping tokens to retail investors at a valuation of 8-10 billion dollars in the B-round financing stage. However, I believe that this cannot be solely attributed to venture capital firms, as the lack of regulation and poor legal precedents/guidance have also played a role in exacerbating the situation. However, VCs cannot establish a ‘cult-like’ user and promoter community with high-value airdrops. Therefore, retail investors have created their own casino and formulated their own rules of the game.

2. Token potential: Currently, the Market Cap of AltCoin is about 900 billion US dollars, and it is expected that there will be 155 billion US dollars of Token issuance in the next 5 years. In comparison, the Market Cap of Memecoin is about 450 billion US dollars, with the Market Cap of emerging Memecoin being about 100 billion US dollars. However, Memecoin does not have a lock-up period, and retail investors can participate in the project early on. Investors have already witnessed the situation where DOGE reached a Market Cap of 95 billion US dollars in the previous cycle, and SHIB’s Market Cap exceeded 40 billion US dollars. Note: I am using data science to identify ‘Cabal Coin’ in order to distinguish fair issuance Tokens from eyewash or Tokens that are more easily manipulated by ‘insiders’.

3. The need for social interaction and belonging: People are spending more and more time on the internet. They feel lonely, worried about their financial prospects, and seek a sense of belonging. Memecoin just meets all the conditions. If you are part of the “baby boomer” generation, understanding the impact of the younger generation on the market is crucial, as they are gradually becoming the main force in the market.

The rise of the online gambling industry: In the past three years, the online gambling industry has experienced significant growth and has now become a $85 billion industry with an annual growth rate of 11.7%. Sports betting accounts for about half of the industry, while mobile gambling is growing faster than offline gambling. Memecoin is developing in line with this trend and has a greater chance of success.

5. Market Perception Shift: The market is gradually realizing that Altcoins and Memecoins are actually selling the same thing - a ticket to the casino. To some extent, this has nothing to do with technology and has always been about speculation (which is not wrong, as Wall Street is the same). And Memecoins seem to be a better investment vehicle for retail investors.

So, how should we identify ‘excellent’ Memecoin projects?

Analyze and identify ‘Cult-Like’ Memecoin

Although it may sound surprising, when I made my first investment in the Cryptocurrency field, my focus on Bitcoin and Ethereum was remarkably similar to my focus on Memecoin now. For example:

Qualitative factors

The widely addressable interest (things that people can support globally)

Strong community (via Crypto Twitter)

Despite experiencing a significant decline, the community still remains steadfast (avoiding 99% of new projects, focusing on tokens that have been market tested with a market capitalization exceeding $100 million)

The price target given within the community is very high.

No unlock period

No risk investment firms (can buy in the market like anyone else)

A good narrative and a community slogan that resonates

Firm belief

Sense of belonging

A network of independent individuals (evangelists) willing to work for the project.

Quantitative factors

Tokenholder growth rate (30, 60, 90 days)

Average holding time of Tokenholder (based on the time of Token’s last movement)

The percentage of holders who have not moved Token for more than 30 days, 60 days, 90 days, etc.

The percentage of token supply held by the top 10, 50, and 100 Addresses

Median Holder Amount (USD)

Hold 5000 dollars and above, 10,000 dollars and above, 250,000 dollars and above, 1,000,000 dollars and above amount of Wallet

During the first week of the project’s launch, the percentage of transactions conducted by Wallets that had traded less than 5 times on the DEX (used to identify projects with a large number of insiders)

Decentralization exchange（DEX）上的Liquidity及其对价格的影响

Listing status of Centralized Exchange (CEX)

The key here is to make relative comparisons between different Tokens to determine the criteria for “excellent” Tokens.

The Memecoin I like and the reasons

Next, I will share some of the Memecoin I bought and research findings. But please note that the prices of these Tokens have pumped several times since I bought them, although I believe their prices will be higher, please do your own research and do not take it as investment advice.

SPX6900

I believe this Token has the potential to enter the top 25 Cryptocurrency Market Cap assets.

SPX6900 has a huge ‘addressable interest’. Just as why Dogecoin performed well at first is because many people like dogs. This is a global market, and it’s very interesting to create memes with them.

I think SPX6900 also has a strong global appeal, with the slogans ‘Flip the stock market’ and ‘Stop trading, believe in something’.

This brings to mind Gamestop, but with much greater potential. Since early September, the SPX Tokenholder community has risen 20 times. The project’s Twitter account has gained 25,000 followers in the past month, with each tweet filled with “cult-like” comments.

And SPX also has a “cult leader” Murad, who owns 2% of the supply and vows not to sell within a year (you don’t have to fully believe his words, but his Wallet has been exposed by the community, making it difficult to break the oath).

In addition, many Crypto Assets Whales have posted large buy orders on Twitter and have also pledged not to sell within a year. This does not mean we should believe them. But this is cult-like behavior, which reminds me of the early stages of Bitcoin.

GIGA

Similar to the SPX6900, GIGA is also derived from iterations of dogs/cats and has a very wide range of ‘addressable interest’. ‘Gigachad’ has been a popular internet meme for many years. It originated from Reddit and 4chan and has gained popularity due to its fusion of irony, humor, exaggerated ideals, lifestyle/fitness, exaggeration, and irony. We know that it already has a wide appeal.

The Token also has a constantly rising Twitter account, powerful on-chain signals, a cult-like community, and interesting Memes. It is also a Token that Murad has been promoting (and holding a large amount of) all along.

So, should we be worried about Murad as an ‘insider’?

Perhaps, but that is not currently the main concern for me. The reasons are as follows:

First of all, the best Crypto Assets projects (also applicable to Memecoin) have a group of advocates and storytellers. Murad is very talented in this regard and has cultivated a large number of followers. His number of Twitter followers has risen from 100,000 to 377,000 in 6 weeks, which is a clear positive signal.

Secondly, I agree with Murad’s approach. In addition to shamelessly promoting his investment, he also shares very clear and understandable arguments, and provides a large amount of useful data to support his ideas. It is emphasized again that investors need to look for cult-like communities. In fact, there are other influencers in the cryptocurrency field with a large number of followers, but most of them are scammers, not transparent enough, and do not share data or arguments. However, retail investors are very smart, so I think they may choose transparent communicators like Murad.

POPCAT

This is simple, it is profiting from the transition from dogs to cats. Although this sounds a bit funny, the data does show this trend. For me, investing in POPCAT is a hedging strategy for BONK.

In addition, POPCAT has a very strong community and a solid on-chain foundation, and it has strong momentum, making it expected to become the winning ‘CAT coin’.

Risk Factors

When dealing with Memecoin, never forget that you are under the shadow of “tail risk”. Again, please do your own research. (Techub News note, tail risk refers to the significant risk that may occur in extreme market environments. The probability of such events is very small, but once they occur, they may cause huge losses.)

The following are the main risks that I believe need to be followed when investing in Memecoin (in no particular order):

Regulatory Risk: If the cryptocurrency industry can be well regulated, it may mean that Altcoins can have more space for innovation in token economic design, bringing returns to holders. This may affect the market’s perception of value and drive investors to shift towards Altcoin assets. However, I believe this will take some time to take effect and is not currently a significant risk.

Liquidity risk: If Memecoin does not have enough liquidity, then market value is meaningless for them.

Large holder dumping: Understand on-chain data to avoid being scammed by Rug Pull (Rug Pull).

Market sentiment/macro shift: Memecoin operates on market sentiment and Liquidity. Therefore, if there is a shift such as Inflation, geopolitical tensions, it will first impact Cryptocurrency (as well as Memecoin).

Attention Shift: The success of Memecoin largely depends on public attention. It is important to note that what is popular today may be quickly replaced by new narratives, especially for projects that have already experienced a significant rise (insiders will profit and shift to new opportunities).

Consensus view: Memes is becoming the consensus bet of Cryptocurrency natives, and new users need to continue to pour in to maintain its vitality.

Conclusion and final thoughts

1. Things that perform well in the early stages of the cryptocurrency cycle often excel in the later stages as well. I believe this could be the case for Memecoin in this cycle.

2. Assets that are difficult to value often have pump potential beyond imagination. The reason is that once the valuation can be done through methods such as Discounted Cash Flow (DCF), the upper limit of the asset’s price is determined. Assets that cannot be valued may have even greater pump potential.

3.DOGE once reached a market capitalization of 950 billion US dollars, which provided an opportunity for new Memecoins, proving that meme coins with mass appeal can also shine in the market.

4. Financial nihilism is a real thing, and Memecoin is a vivid interpretation of this nihilism. They represent a bet on the uncertainty of the financial market and a way for investors to seek novelty and excitement.

5. Rational treatment of Memecoin, if you have a strong interest or concern about Memecoin, please be sure to understand them in depth, rather than being influenced by emotions.

6. I strategically chose to trade memecoins on Solana. Because in my opinion, the memecoin ecosystem on Solana is the most prosperous.

7. Is Memecoin practical? Memecoin offers a “C-to-C” service, i.e., customer-to-customer. They represent values such as entertainment, community, and reducing loneliness (although this may sound somewhat pathetic). To some extent, Memecoin’s revenue is not realized through traditional means, but through the capital appreciation of Token.

8. Memecoin is more suitable as a short-term trading tool rather than a multi-cycle investment object. Investors should be clear about this and formulate investment strategies accordingly.

9. I believe that if there is another market frenzy like the AltCoin season, there may be 25 (or even up to 50) Memecoins in the top 100 encryption assets. Currently, this number is only 10, and there is still a lot of room for rise in the future.

10. From a personal experience, I have had several serious discussions with institutional investors in the Crypto Assets field about Memecoin. I believe we are still in the early stages, and the development trend of Memecoin may 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, then you have already lost. So please make sure to avoid this situation.