Memecoins
Meme coin traders can benefit from fundamental analysis, says Jupiter Zhang of HashKey Capital
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Meme coins recorded an average return of 1,300% during the first quarter, second to a report from CoinGecko. This made meme coins the most profitable narrative during that time and caused the number of tokens issued on Solana, the hottest blockchain for meme coin trading, to reach an all-time high of 14,648 tokens launched.
In this landscape, new investors might be tempted to splash their funds across several meme coins and hope for stellar growth. Jupiter Zhang, head of liquid funds at investment firm HashKey Capital, points out that “for every success story there are dozens of failures.”
“Market fundamentals have never been more important. […] FOMO is not a long-term strategy,” Zhang shared with Crypto Briefing. “Fundamental analysis provides a structured and analytical approach to investing, especially crucial in a volatile market like cryptocurrencies. Although the high returns of meme coins may seem attractive, they are often driven by hype and speculation rather than underlying economic value.”
Recently, HashKey Capital released a 217 page book entitled “Digital Asset Valuation Framework”, a guide to fundamental analysis in the cryptocurrency sector. Zhang is the lead author and says that by understanding fundamental analysis, investors can identify assets with real potential and longevity, reducing risk and promoting a more sustainable investment strategy.
“This is critical because, as the meme coin narrative shows, not all that glitters in the cryptocurrency world is gold.”
Why worry about fundamentals?
Meme coins, as the name suggests, are created by backpacking on a famous meme. For this reason, most of them usually have a short lifespan. Investors may not be inclined to learn how to conduct proper research as the distribution of money may be more profitable.
“Even in the seemingly wacky area of meme coins, fundamental analysis can provide insights. For example, evaluating the token’s community involvement, development activity and use cases can offer a glimpse into its potential sustainability and growth,” explains Zhang.
Additionally, fundamental analysis can be helpful in identifying which meme coins have a strong enough narrative to sustain long-term interest in those coins that are likely to fade as the initial hype fades.
“Fundamental analysis is not necessarily in opposition to narrative-driven investing, which focuses primarily on stories and trends that capture market interest and investor sentiment. They can be used together to provide a more comprehensive assessment of a digital asset’s potential.”
Zhang adds that while fundamental analysis aims for long-term growth against the often emotional and speculative waves of the market, narrative-driven investing is useful for riding the waves of market enthusiasm and investor psychology, potentially reaping quick rewards .
However, narrative-driven investing often leads to fear of missing out (FOMO), which usually leads to bad investments. In other words, narrative-driven analysis requires an effort to time the market and move quickly before the narrative changes, while fundamental analysis delves into the intrinsic value of an investment, seeking to identify assets with strong fundamentals that suggest value intrinsically higher than the market. price.
“This is a more methodical path to potentially sustainable gains, as it requires rigorous evaluation of the data. Some things we look at when evaluating the fundamentals of digital assets: a thorough evaluation of a token’s utility, governance structure, delivery mechanisms, tech stack, and potential innovations.”
More VC in meme coins
The meme coin market has always been a way for investors to gamble without generating returns for VCs. This is because when a protocol token is made available to the public, VCs already have it in their hands at a significantly lower price. Accordingly, if this token becomes popular and its price increases, the real winners will be the VCs.
Meanwhile, since meme coins are community-issued, this is an industry that VCs cannot profit from. Or couldn’t until recently. Shiba Inu closed in $12 million funding round with the participation of Mechanism Capital, Big Brain Holdings, Cypher Capital and Shima Capital, among others, and this could change the situation in the meme coin market.
“Across all sectors, industries and opportunities, investors will seek returns in all corners of the market. So large-scale investments in meme coins are really not surprising,” says Zhang regarding the recent VC move into these tokens. “Shiba Inu’s fundraising success suggests that meme coins can also capture investors’ attention when they align with a compelling narrative and show the potential for broader ecosystem development based on community engagement.”
Therefore, this is where fundamental analysis shows its weight. Zhang believes that as more and more people equip themselves with fundamental analysis tools, the number of serious investments directed into selected meme coins will show sustained growth over time.
“These will likely be the ones that demonstrate real utility, ongoing social value, or strategic significance within the cryptocurrency market, beyond just the initial hype.”
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