Foresight Ventures: A Review of Investment Patterns in Meme Coins
Meme coins need to have an interesting storyline to potentially convert attracted players into holders. Most narrative cultures are fabricated, and whether they can be realized is not important; what matters is that the logic is coherent.Author: Jonas, Foresight Ventures
1: The Opportunity of Meme
The concept of meme coins has become one of the most关注的投资机会 in the cryptocurrency field. According to CoinGecko statistics, there are about 200-300 projects in the meme coin sector, with a total market value of approximately $16 billion. Normal projects are likely to yield returns of 5-20 times during a bull market, while DOGE has risen 400 times and SHIB has risen 500,000 times, both entering the top 20 by total market value. To some extent, it can be said that the success of DOGE and SHIB is the monetization of meme culture.
Chart 1: Meme Classification by CoinGecko
2: Elements of Meme Speculation
a) Attention:
Meme is the attention of the entire internet. For example, the celebrity effect where Musk promotes DOGE; SHIB riding on the concepts of Vitalik and Musk; LUNC was once a top 10 blue-chip project by market cap, etc. Viral spread can trigger the success of meme coins, but the extreme volatility influenced by celebrities still means high risk. Therefore, tracking community engagement and measuring market sentiment can help predict price trends. For example, Google Trends is one of the commonly used methods to measure market interest in a particular topic, and Twitter sentiment indicators help gauge the emotions of market participants, sometimes serving as leading indicators.
Chart 2: Google Search Trends for SHIB
b) Small Market Cap:
A large market cap makes it difficult to manipulate for a surge. Before speculation, whether it was DOGE, SHIB, PEOPLE, or LUNC, their market caps were all small. The prices were extremely low, usually less than $1, often just a few cents, for example, SHIB's price started at 0.000000000000000000000000000000000000000000000000000001.
c) Narrative Consensus Value:
Meme coins need to have a fun story to potentially convert attracted players into holders. Most narrative cultures are fabricated, and whether they can be realized is not important, as long as the logic is coherent. For example, DOGE's tipping culture; SHIB claims to build a DeFi public chain ecosystem; PEOPLE talks about buying the U.S. Constitution, LUNC adopts burn deflation measures, and TSUKA spreads Tibetan Buddhist spirit, among others.
d) Exchange KPI Driven:
A crucial idea in the operation of exchanges is to continuously create wealth effects and generate hot topics around coins. This way, they can consistently attract market attention, draw in more users, and build a better reputation. The success rate of meme coins is low, but the potential for sudden wealth is high, making them the first stop for new investors entering the crypto space. Therefore, exchanges will drive meme sentiment speculation to form a synergy. For example, SHIB surged due to the listing effects on Huobi, OKX, Binance, and Coinbase.
Chart 3: SHIB Price Performance in October 2021
3: The Rotation Cycle of Meme
The certainty difference is the reason why the rotation cycle of meme coins is in the later stage of a bull market. One often sees such cyclical patterns: cash → mainstream coins → popular sectors → future concepts → meme coins → cash. If it were the last bull market cycle, the corresponding investment route would be: cash → BTC/ETH → DeFi/L2 → GameFi/metaverse/NFT → DOGE/SHIB/animal coins → cash.
If you had as much cash as Buffett, would you choose stable growth of 20%, or would you risk losing all your principal to pursue a 10x return? Clearly, the former. The choice of large funds in a bull market is similar: they prioritize certainty. When BTC is rising, why divert funds to other coins? This is the reason for the BTC siphoning phenomenon: the certainty difference. When BTC is not rising or is stagnant, large funds in a bull market will flow out to choose high-growth hot sectors. The reason is that one can achieve the same returns with less capital, and the risk is relatively controllable. Therefore, when the overall market cap of cryptocurrencies rises and BTC's dominance decreases, it is the critical point for meme coins to take off. Similarly, after the explosive rise of meme coins, it becomes very difficult to make money in the market for a month or two.
Chart 4: Rotation of Crypto Market Sectors
4: Speculative Thinking on Meme
Meme coins are characterized by high volatility. They can rise 10 times, then halve. Then rise 10 times again, and then halve again. A meme coin that breaks out can rise more than 10 times initially, and within 2 weeks to 2 months, there will be a second major surge. Therefore, timing is particularly important for meme coins.
a) Buying Method at Breaking Integer Levels:
When a meme coin breaks through 1 and 100 and stabilizes, there will be a 10-20% upward space, so buying at this time provides a good safety cushion for returns. Jesse Livermore, in "Reminiscences of a Stock Operator," particularly liked to buy when the market accelerated at breaking integer levels. The first break of an integer level is generally very secure. If it is not the first break of an integer level, waiting for more than six months is also possible, but the effect will be weakened. Specifically, if there is 1, there is 2, but not 3 or 4. Both 1 and 2 can be participated in, with 1 providing the most gains because breaking through the magnitude is the hardest and thus has the most significant impact. For example, the effect of SHIB going to zero and LUNC going to zero after re-listing on Binance is very obvious.
Chart 5: SHIB's Going to Zero Effect
b) Buying Method at Breaking Historical Highs:
Historical highs are pressure points for chips, and setting a new high is the strongest type of trend. Generally, when the price enters the 80% area of the historical high, it will touch the absorption point of the historical high, at which point close monitoring is required to confirm. Breaking through key positions incurs the cost of potentially giving up the interval profits before and after the key position, but the benefit is that it completely mitigates the risk of a pullback. This approach may seem dangerous, but it is relatively safe because stocks tend to have inertia when they rise quickly, and the key is effective stop-loss. Theoretically, one should only buy meme coins that are making new highs, and avoid those that have not broken historical highs. If combined with increased trading volume, the investment risk-reward ratio will be very high.
5: Solutions to Risks
Divide the funds in the market into two parts: the portion for meme coins and the portion for basic operations. When to use the all-in portion? When you believe you can earn at least 50%. The correct selling position for meme coins is usually after two consecutive days of a 20% increase on the daily candlestick, or selling half after doubling, ensuring a profit. Soros once said that the history of the world economy is a continuous drama based on illusions and lies. To gain wealth, the approach is to recognize the illusions, invest in them, and then exit the game before the illusions are recognized by the public.
