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

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, this field will continue to show strong momentum.

Authored by: Michael Nadeau, Founder of The Decentralized Finance Report

Compiled by: Glendon, Techub News

Among the top 20 performing Crypto Assets this year, 14 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, this field will continue to show strong momentum.

Change the view on Memecoin

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

Looking back at the last market cycle, I could hardly stand Memecoin. In my opinion, projects like Dogecoin (DOGE) and Shiba Inu (SHIB) seem to be mocking the industry - which is undoubtedly unacceptable for a ‘purist’ 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 is largely misunderstood, so I am committed to eliminating 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 good impression of them.

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

Why is this so?

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

At first, it was highly regarded on Coinmarketcap, and I often heard its name on podcasts. I even met a representative of Bonk at a Solana conference. So I clearly realized that something interesting was happening, and then I bought this Token.

My argument is that BONK may become Solana’s ‘cultural Token’, just as Shiba Inu (SHIB)'s position in the Ethereum ecosystem.

If this is true, then considering that during the previous cycle, SHIB’s Market Cap on the ETH network once exceeded 40 billion dollars, BONK may also have a large pump space. After all, if you are bullish on 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 on Memecoin has changed. Of course, I’m not advocating that all Memecoins are worthy investment assets to buy and hold, but interesting things are indeed happening in this field.

Therefore, the purpose of writing this article is to hope that more readers can maintain an open and curious attitude, “roll up their sleeves,” follow basic principles, delve into this field, rather than easily deny it.

Investing in ‘cult’ Memecoin

Recently, I have gained a clearer understanding of Fundamental Analysis of Crypto Assets and networks. This shift was triggered by someone asking me at the end of December 2022 about my perspective on Solana. At that time, I couldn’t provide a clear answer from a fundamental perspective, as Solana had no fundamental analysis at that time. However, I had already done a lot of research before investing.

“I just feel that the community atmosphere of Solana is similar to that of Ethereum in December 2018 (when the ETH transaction price fell to $80). Through data analysis, I found that key performance indicators also show similar trends. At the same time, I can feel the power of the community, and after researching core contributors, founding teams, investors, etc., I found that although these people have made money, they seem to want to stay and stick to the end to ‘chew on the hard bones’. So my intuition tells me that it will make a comeback.”

This was my answer at the time.

But in fact, what I did was recognize a ‘cult,’ but at that time I hadn’t fully realized it until I watched Murad Mahmudov’s speech at the Token 2049 conference.

When he compared Memecoin to “cult,” I suddenly saw the light. Why is that?

Because my success in the Crypto Assets field can almost all 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 like Apple, TSL, and Barstool Sports have a “cult-like” quality.

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

Because the best brands without exception have a ‘cult-like’ following, the cryptocurrency networks are no different, except they prefer to call themselves ‘communities’ instead of ‘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, the legendary macro trader. In the interview, he mentioned that Stanley Druckenmiller, the founder of Duquesne Capital, told him: ‘The price of BTC fell from $20,000 to $3,000 at one point, but 80% of BTC holders still held on.’

This is a cult-like behavior, and it is what we are looking for in the Cryptocurrency network / investable assets, and it is 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 fact.

Memecoin performs well

Why does Memecoin perform well? In my opinion, there are 5 key factors:

1. The counterattack of retail investors: Retail investors are tired of playing a manipulated gambling game with venture capital (VC) - venture capital companies are accustomed to dumping tokens to retail investors in the B-round financing stage at valuations of $8 billion to $10 billion. However, I believe that this cannot be entirely attributed to venture capital companies. The lack of regulation and poor legal precedents/guidance also play a role in exacerbating the situation. However, VCs cannot establish a “cult-like” user and promoter community with high valuation airdrops. Therefore, retail investors have created their own casino and set their own rules of the game.

2. Token Potential: Currently, the market capitalization of AltCoin is about $900 billion, and it is expected that $155 billion worth of tokens will be unlocked in the next 5 years. In contrast, the market capitalization of Memecoin is about $45 billion, with emerging Memecoins having a market capitalization of around $10 billion. However, Memecoin has no unlocking period, so retail investors can participate in it early on, and investors have witnessed DOGE reaching a market capitalization of $95 billion and SHIB reaching a market capitalization of over $40 billion in the previous cycle. Note: I am using data science to identify ‘Cabal Coin’ in order to distinguish fairly issued tokens from those that are eyewash or more easily manipulated by ‘insiders’.

3. The need for socialization and a sense of belonging: People are spending more and more time on the internet. They feel lonely, worry about their financial prospects, and seek a sense of belonging. Memecoin fulfills all these requirements. If you are from the ‘baby boomer’ generation, understanding the influence of the younger generation on the market is crucial, as they are gradually becoming the main force in the market.

4. 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 up to 11.7%. Sports betting accounts for about half of this industry, and the rise of mobile gambling has exceeded that of offline gambling. Memecoin has developed in line with this trend and has a greater chance of success.

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

So, how do we identify “good” Memecoin projects?

Analysis and Identification of ‘Cult-Like’ Memecoin

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

Qualitative factors

Widespread ‘Addressable Interest’ (things that people can support globally)

Powerful community (via Crypto Twitter)

Despite the significant downturn, the community still adheres to (avoiding 99% of new projects and focusing on tokens that have been market tested and have a market capitalization exceeding $100 million).

The price target given within the community is very high.

No lock-up period

No venture capital firms (can buy in the market like others)

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 the last movement of the Token)

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

Percentage of Token supply held by the top 10, 50, 100 Addresses

Median Holder Amount (USD)

Hold 5000 US dollars or more, 10,000 US dollars or more, 250,000 US dollars or more, and 1,000,000 US dollars or more Wallet quantities

During the first week of the project’s launch, the percentage of trades conducted by Wallets that had previously 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 standard of “excellent” Tokens.

My favorite Memecoin and the reasons

Next, I will share some Memecoin that I have purchased and researched. But please note that the prices of these Tokens have pumped several times since I bought them, although I believe their prices will go 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 assets in the Cryptocurrency Market Cap.

The SPX6900 has a huge ‘addressable interest’. Just as Dogecoin performed well initially because many people love dogs. This is a global market and it is very interesting to create memes with them.

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

This reminds us of 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 every tweet filled with ‘cult-like’ comments.

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 vow).

In addition, many CryptocurrencyWhales 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 SPX6900, GIGA is a dog/cat iteration with a very broad “addressable interest interest”. “Gigachad” has been an internet meme for many years. It originated in Reddit and 4chan and gained popularity for its blend of satire, humor, exaggerated ideals, lifestyle/fitness, exaggeration, and satire. We know that it already has a wide range of 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).

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

Perhaps, but at the moment, this is not the main issue I am concerned about. The reasons are as follows:

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

Secondly, I appreciate Murad’s approach. Besides shamelessly promoting his investments, he also shares very clear and understandable arguments and provides a wealth 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 field who have a large number of followers, but most of them are scammers, lack transparency, and do not share data or arguments. However, retail investors are smart, so I think they may choose transparent communicators like Murad.

POPCAT

It’s simple, it’s profiting from the transition from dog to cat. Although this sounds a bit funny, the data does show this trend. For me, investing in POPCAT is a hedge against BONK investment.

In addition, POPCAT has a very strong community and a good on-chain foundation, and its momentum is strong, so it is 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 make sure to do your own research. (Techub News note, tail risk refers to the significant risk that may occur in extreme market conditions. The probability of such events is very small, but once it occurs, it may bring huge losses.)

Here 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 room for innovation in token economic design, bringing returns to holders. This may affect the market’s perception of value and drive investors towards altcoin assets. However, I believe this will take some time to take effect and is not currently a major risk.

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

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

Market Sentiment / Macro Shift: Memecoin relies on market sentiment and Liquidity operation. Therefore, if there is Inflation, geopolitical tensions and other shifts, it will first affect Cryptocurrency (as well as Memecoin).

Attention shift: The success of Memecoin largely depends on public attention. You should know that what is popular today may be quickly replaced by new narratives, especially for projects that have already risen significantly (insiders will profit and turn to new opportunities).

Consensus view: Memes are becoming the Consensus bet of crypto asset natives, and new users need to continue to influx in order to maintain its vitality.

Conclusion and final thoughts

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

2. Those assets that are difficult to value often have pump potential beyond imagination. This is because once the valuation can be done through methods such as discounted cash flow (DCF), the upper limit of the price of the asset is determined. Assets that cannot be valued may have even greater pump potential.

3. DOGE once reached a market capitalization of 95 billion US dollars, which provides 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 the financial market and a way for investors to seek novelty and excitement.

5. Rational treatment of Memecoin, if you have strong interest or concerns 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 a market boom like the AltCoin season again, there may be 25 (or even up to 50) Memecoins entering 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 perspective, I have had multiple conversations with several serious (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 than you can afford to lose. If you invest in Memecoin and it keeps you awake at night, then you have already lost. So, please make sure to avoid this situation.