How to Identify and Invest in "Cult-Like" Memecoins? An Article Exploring the Potential, Advantages, and Risks of Memecoins

Author: Michael Nadeau, Founder of The DeFi Report

Translation: Glendon, Techub News

Among the top 20 performing cryptocurrency assets this year, 14 are Memecoin projects. This statistic is hard to ignore.

In this article, I’ll delve into identifying promising Memecoins and explain why I believe this sector will continue to show strong momentum as we approach the end of the year and enter 2025.

Changing Perspectives on Memecoins

When I started writing this article, I felt conflicted. I know some readers instinctively resist Memecoins, and I understand. I used to feel the same way.

Looking back at the last market cycle, I found Memecoins almost unbearable. Projects like Dogecoin (DOGE) and Shiba Inu (SHIB) seemed to mock the industry, which was hard for a “purist” like me to accept.

Since entering the cryptocurrency space, I’ve been focused on on-chain data and fundamental analysis. I believe this industry is largely misunderstood, so I’ve aimed to cut through the noise. My method has been simple: rely on data, analyze with clear frameworks, focus on business models and cash flows, and maintain absolute honesty.

By these standards, Memecoins didn’t make the cut, so I had no fondness for them.

However, my perspective changed about a year ago when I purchased my first Memecoin, BONK (which I still hold).

Why Did My Opinion Change?

While researching Bonk (BONK), I noticed it had a strong community, many integrations within the Solana ecosystem, and an active team building something tangible. It was hard to ignore.

Initially, it garnered attention on CoinMarketCap. I often heard its name on podcasts and even met Bonk representatives at Solana conferences. It became clear something interesting was happening, and I decided to buy the token.

My argument was that BONK might become Solana's "cultural token," akin to Shiba Inu (SHIB) in the Ethereum ecosystem.

If true, and considering SHIB’s market cap on Ethereum exceeded $40 billion in the last cycle, BONK could have significant upside potential. After all, if you’re bullish on an L1 platform, identifying tokens with a high beta value to that L1 asset is a smart move. (Techub News note: high beta indicates high risk and high reward.)

Since then, my outlook on Memecoins has shifted.

Of course, not all Memecoins are worthy investments to buy and hold. However, this sector has undeniably intriguing developments. Through this article, I hope to encourage readers to stay open-minded, dig deeper into the space following fundamental principles, and avoid dismissing it outright.

Investing in "Cult-Like" Memecoins

Recently, I’ve developed a clearer understanding of fundamental analysis for crypto assets and networks. This shift began when someone asked for my opinion on Solana in late December 2022. At the time, I struggled to give a clear answer based on fundamentals since Solana had none. However, I had already done extensive research before investing.

“I just felt the community vibe of Solana in 2022 was similar to Ethereum’s in December 2018 (when ETH dropped to $80). Data analysis revealed similar key performance indicators. Moreover, the community seemed resilient, and despite making money, core contributors, founders, and investors appeared committed to sticking around and solving hard problems. My intuition told me it would bounce back,” I said.

In retrospect, I had identified a “cult” without fully realizing it. This realization became clear when I heard Murad Mahmudov’s talk at Token 2049, where he likened Memecoins to cults. It was an epiphany.

Why?

Because my successful crypto investments—Bitcoin, Ethereum, Solana, and Chainlink—can all be described as “cults.” The most powerful crypto networks (and assets) often exhibit cult-like traits.

Even companies like Apple, Tesla, and Barstool Sports possess “cult-like” qualities. As investors, our task is to identify these cults. The strongest brands inevitably have devoted followers, and so do cryptocurrency networks. In crypto, these communities are often referred to as “communities” rather than “cults.”

Why Memecoins Perform Well

In my view, five key factors drive Memecoins’ success:

Retail Investors’ Counteraction: Retail investors are tired of playing manipulated games with venture capitalists (VCs), who offload tokens at inflated valuations. Retail investors have built their own casinos with their own rules.
Token Potential: Memecoins offer opportunities for early retail participation, unlike tokens with lock-up periods dominated by insiders.
Social and Belonging Needs: People spend more time online, feel lonely, and seek belonging. Memecoins cater to these needs.
Online Gambling Growth: With online gambling becoming an $85 billion industry, Memecoins ride this wave of speculative excitement.
Market Perception Shift: Memecoins are now recognized as speculative tools, akin to casino tickets, but resonate more with retail investors.

How to Identify Promising Memecoins

Qualitative Factors:

Broad appeal
Strong community
Resilience after downturns
Bold narratives and slogans
Decentralized ownership

Quantitative Factors:

Holder growth rates
Token supply distribution
Liquidity dynamics
Exchange listings

Risks to Consider

Regulatory risks
Liquidity risks
Whale sell-offs
Market sentiment shifts
Attention shifts

Conclusion

Early cycle trends often persist into later stages.
Assets that defy traditional valuation methods can surprise.
Memecoins address financial nihilism and resonate with communities.
They are better suited for short-term trading than multi-cycle investments.
With proper research and caution, Memecoins could remain a compelling investment narrative moving forward.

This article was sourced from Foresight News:

https://foresightnews.pro/article/detail/71949

AIC Team

November 25, 2024