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.
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 Views on Memecoins
At the beginning of writing this article, I was a bit conflicted. Because I know some readers have a natural aversion to memecoins. I can understand, as I have had the same feelings about them.
Looking back at the last market cycle, I could hardly tolerate memecoins. To me, projects like Dogecoin (DOGE) and Shiba Inu (SHIB) seemed to mock the industry—something that is undoubtedly hard for a 'purist' like me to accept. After all, since I entered the cryptocurrency industry, I have focused on on-chain data and fundamental analysis. I think this industry has been largely misunderstood, so I am dedicated to cutting through the noise. How do I do that? My approach is straightforward: rely on data, analyze problems through a simple and understandable framework, focus on business models and cash flow, while maintaining absolute honesty.
However, memecoins clearly do not meet my judgment criteria, so I have no good feelings towards them.
But about a year ago, when I bought my first memecoin—BONK (which I still hold)—I changed my view.
Why is that?
When I started researching Bonk (BONK), I found it had a strong community, many integrations in the Solana ecosystem, and the team was building something, which made it hard for me to ignore it.
At first, it was prominent 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 some interesting things were happening, and then I bought the token.
My argument is that BONK may become Solana's 'cultural token', just as Shiba Inu (SHIB) holds a position in the Ethereum ecosystem.
If this is true, then considering that in the last cycle, SHIB's market cap on Ethereum once exceeded $40 billion, BONK may also have significant upside potential. After all, if you are optimistic about the development of a certain L1, then looking for tokens that may have a high beta value against L1 assets is undoubtedly a wise choice. (Techub News note, high beta means the asset has high risk and high return.)
Since then, my view on memecoins has changed. Of course, I do not advocate that all memecoins are worthy investments to buy and hold; it’s just that some interesting things are happening in this space.
Therefore, the purpose of writing this article is to hope that more readers can maintain an open and curious mindset and 'roll up their sleeves', follow the basic principles, and delve into this field instead of easily dismissing it.
Investing in 'Cult' Memecoins
Recently, I have gained a clearer understanding of the fundamental analysis of cryptocurrency assets and networks. This shift was triggered when someone asked me how I viewed Solana at the end of December 2022. At that time, I could not give a clear answer from a fundamental perspective because Solana had no fundamentals then. But I had already done a lot of research before investing.
'I just feel that the community atmosphere of Solana is very similar to Ethereum in December 2018 (when ETH traded at $80). Through data analysis, I found that key performance indicators also showed a similar trend. 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 stick around and 'chew through the tough bones'. So, my intuition tells me it will make a comeback.'
This was my answer at the time.
But in reality, what I did was identify a 'cult'; I just hadn’t fully realized it until I watched Murad Mahmudov's speech at the Token 2049 conference.
When he compared memecoins to 'cults', I had an epiphany. Why is that?
My successful investments in the cryptocurrency space can almost all be attributed to 'cult-like investing'.
Bitcoin, Ethereum, Solana, and Chainlink can all be seen as a kind of 'cult'; you could say the most powerful cryptocurrency networks (and assets) almost have 'cult' characteristics.
Even tech companies like Apple, Tesla, Barstool Sports exhibit 'cult-like' characteristics.
And as investors, we actually need to identify these 'cults'.
Because the best brands all have 'cult-like' followers, and cryptocurrency networks are no exception; they just prefer to call themselves 'communities' rather than 'cults'. This reminds me of one reason I firmly bet on Bitcoin in early 2020: I watched an interview with Paul Tudor Jones (legendary macro trader). He mentioned that Stanley Druckenmiller told him: 'The price of Bitcoin once fell from $20,000 to $3,000, but 80% of Bitcoin holders still held on.'
This is cult-like behavior, and it is what we are looking for in cryptocurrency networks / investable assets, and is also an important part of fundamental analysis. If you are a value investor, you might find my views a bit far-fetched. But to me, this is a cold hard fact.
Memecoins perform well
Why do memecoins perform well? In my view, there are 5 key factors:
1. Retail Investor Backlash: Retail investors have grown tired of playing a manipulated casino game with venture capital firms (VCs)—VCs have gotten used to selling tokens to retail at valuations of $8 billion to $10 billion in Series B funding. That said, I think this cannot be entirely blamed on venture capital firms; lack of regulation and poor legal precedents/guidance have also played a role. However, VCs cannot build a 'cult-like' community of users and spreaders with high-valued airdrops. Therefore, retail investors created their own casino and set their own rules.
2. Token Potential: Currently, the market cap of altcoins is around $900 billion, and it is expected that $155 billion worth of tokens will be unlocked in the next 5 years. In contrast, the market cap of memecoins is about $45 billion, with emerging memecoins around $10 billion. However, memecoins have no unlocking period, and retail investors can participate early in the project, and investors have already witnessed DOGE reaching a market cap of $95 billion in the last cycle and SHIB exceeding $40 billion. Note: I am using data science to identify 'Cabal Coin' to distinguish fairly issued tokens from scams or tokens that are more easily manipulated by 'insiders'.
3. The Need for Social Connection and Belonging: People are spending more and more time online. They feel lonely, worry about their financial prospects, and seek a sense of belonging. Memecoins just happen to meet all these conditions. If you are a 'baby boomer,' it is crucial to understand the impact the younger generation has on the market, as they are gradually becoming the main force in the market.
4. The Rise of the Online Gambling Industry: Over the past 3 years, the online gambling industry has experienced significant growth, now valued at $85 billion, with an annual growth rate of 11.7%. Sports betting accounts for about half of the industry's share, and mobile betting is growing faster than offline betting. Memecoins are developing alongside this trend, having a greater chance of success.
5. Market Perception Shift: The market is gradually realizing that altcoins and memecoins are essentially selling the same thing—a ticket to the casino. To some extent, this has nothing to do with technology; it has always been about speculation (which is not wrong, as Wall Street operates this way). And memecoins seem to be a better investment tool for retail investors.
So how should we identify 'excellent' memecoin projects?
Analyze and Identify 'Cult-Like' Memecoins
While it may sound a bit surprising, the focus I had on Bitcoin and Ethereum when I made my first investments in the cryptocurrency space has striking similarities to my current focus on memecoins. For example:
Qualitative Factors
Broad 'Addressable Interest' (things that people can support globally)
Strong community (through Crypto Twitter)
Despite significant declines, the community remains steadfast (avoiding 99% of new projects, focusing on tokens with a market cap of over $100 million that have been tested in the market)
Extremely high price targets set internally within the community
No unlocking period
No venture capital firms (can buy in the market like others)
A good narrative and a community slogan that can resonate
Strong belief
Sense of belonging
A network of independent individuals willing to work for the project (evangelists)
Quantitative Factors
Token Holder Growth Rate (30, 60, 90 days)
Average Holding Time of Token Holders (based on the last time the token moved)
Percentage of token holders who have not moved their tokens for over 30 days, 60 days, 90 days, etc.
Percentage of token supply held by the top 10, 50, 100 addresses
Median Holder Amount (USD)
Number of wallets holding amounts of $5,000 and above, $10,000 and above, $250,000 and above, $1,000,000 and above
Percentage of wallets that made fewer than 5 trades on DEX in the first week of the project (used to identify projects with a lot of insiders)
Liquidity on decentralized exchanges (DEX) and its impact on price
Listing situation on centralized exchanges (CEX)
The key here is to conduct relative comparisons between different tokens to determine the standards for 'excellent' tokens.
My favorite memecoins and reasons
Next, I will share some memecoins I have purchased and research findings. But please note that the prices of these tokens have risen several times since I bought them, although I believe their prices will go higher; please do your own research and do not take this as investment advice.
SPX6900
I believe this token has the potential to enter the top 25 cryptocurrency assets by market cap.
SPX6900 has a huge 'addressable interest'. Just as Dogecoin performed well initially because many people love dogs. This is a global market, making memes with them is very interesting.
I believe SPX6900 also has strong global appeal, with the slogan 'Flip the stock market' and 'Stop trading, believe in something.'
This brings to mind Gamestop, but the potential is much greater. Since early September, the SPX token holder community has grown 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 swears he won't sell for a year (you don't have to fully believe him, but his wallet has been exposed by the community, which makes it hard to go back on his word).
In addition, many cryptocurrency whales posted large buy orders on Twitter and also vowed not to sell for a year. This does not mean we should believe them. But this is cult-like behavior, which reminds me of Bitcoin's early stages.
GIGA
Similar to SPX6900, GIGA is also based on dog/cat iterations, with a very broad 'addressable interest'. 'Gigachad' has been a popular meme for many years. It originated from Reddit and 4chan and has gained popularity due to its blend of irony, humor, exaggerated ideals, lifestyle/fitness, exaggeration, and satire. We know it already has wide appeal.
This token also has a growing Twitter account, strong on-chain signals, a cult-like community, and interesting memes. It is also the token that Murad has been promoting (and holding a large amount of).
So should we be concerned about Murad as an 'insider'?
Perhaps so, but this is not my main concern at the moment. The reasons are as follows:
First of all, the best cryptocurrency projects (also applicable to memecoins) have a group of spreaders and storytellers. Murad is very talented in this regard, having cultivated a large following. His number of Twitter followers jumped from 100,000 to 377,000 in 6 weeks, which is a clear positive signal.
Secondly, I agree with Murad's approach. Besides 'shamelessly' promoting his investments, he also shares very clear and understandable arguments and provides a lot of useful data to support his ideas. Again, investors need to look for cult-like communities. In fact, there are other influencers in the cryptocurrency space with a lot of followers, but most of them are scammers, lack transparency, and won't share data or arguments. But retail investors are 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. While this may sound a bit ridiculous, the data indeed shows this trend. For me, investing in POPCAT is a hedge against my investment in BONK.
Additionally, POPCAT has a very strong community and solid on-chain fundamentals, and is gaining momentum, thus is expected to become a winning 'cat coin'.
Risk Factors
When dealing with memecoins, 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 risks that may occur in extreme market environments; the probability of these events is very low, but when they occur, they can lead to substantial losses.)
Here are the main risks I think need to be considered when investing in memecoins (in no particular order):
Regulatory Risk: If the cryptocurrency industry can be well-regulated, it may mean that altcoins can gain more room for innovation in token economics, thus bringing returns to holders. This could affect the market's perception of value and drive investors towards altcoin assets. However, I believe this will still take some time to play out, and it is currently not a huge risk.
Liquidity Risk: If memecoins lack sufficient liquidity, then market value is meaningless to them.
Large Holder Sell-offs: Understanding on-chain data to avoid being scammed by Rug Pulls.
Market Sentiment / Macro Changes: Memecoins operate on market sentiment and liquidity. Therefore, changes like inflation, geopolitical tensions, etc., will first impact cryptocurrency (and memecoins).
Attention Shift: The success of memecoins largely depends on public attention. You should know that what is popular today may soon be replaced by a new narrative, especially projects that have already seen significant gains (insiders will profit and move on to new opportunities).
Consensus View: Memes are becoming a consensus stake among cryptocurrency natives, requiring a constant influx of new users to maintain their 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 cycle's memecoins may be like that.
2. Assets that are hard to value often have upside potential that exceeds expectations. The reason is that once an asset can be valued using methods like discounted cash flow (DCF), its price ceiling is established. However, unvalued assets may hold greater upside potential.
3. DOGE once reached a market cap of $95 billion, providing opportunities for new memecoins, proving that memecoins with mass appeal can also shine in the market.
4. Financial nihilism is real, and memecoins vividly embody this nihilism. They represent a bet against the uncertainty of financial markets and a way for investors to seek novelty and excitement.
5. Treat memecoins rationally; if you have a strong interest or concern about memecoins, be sure to understand them deeply rather than being swayed by emotions.
6. I strategically chose to trade memecoins on Solana. Because in my view, the memecoin ecosystem on Solana is the most prosperous.
7. Do memecoins have utility? Memecoins provide 'C to C' services, meaning customer-to-customer. They represent values like entertainment, community, and reducing loneliness (though this sounds a bit sad). In some ways, the revenue from memecoins is not achieved through traditional means but is reflected in the capital appreciation of the tokens.
8. Memecoins are more suitable as a short-term trading tool rather than a multi-cycle investment object. Investors should be clear about this and develop investment strategies accordingly.
9. I believe that if there is a market frenzy like the altcoin season again, there could be 25 (or even as many as 50) memecoins among the top 100 crypto assets. Currently, that number is only 10, and there is still significant room for growth in the future.
10. From personal experience, I have had multiple conversations with several serious (institutional investors in the cryptocurrency space) about memecoins. I believe we are still in the early stages, and the development trend of memecoins may continue.
11. Finally, I want to emphasize that you should never invest more than you can afford to lose. If you invest in memecoins and it keeps you up at night, then you have already lost. So please avoid this situation.
