Memecoin represents the “Wild West” image of DeFi. Thanks to the runaway success of tokens like Dogecoin (DOGE) and Shiba Inu (SHIB), the memecoin market boasts a market capitalization of $54.4 billion, a figure that may seem steep for these assets. appeared for the first time.
Most recently in March, memecoin trading volumes reached a peak, last seen just before the crypto space crash of 2022. This resurgence highlights a familiar trend : traders easily get caught up in the hype and FOMO, to the point that they make impulsive investment decisions based on pure instinct and greed.
In report Digital Asset Valuation Framework, the development team at HashKey Capital has made the case for applying fundamental valuation frameworks and high-level technical analysis to navigate the inherent volatility of market and avoid the pitfalls of the memecoin craze.
Now, more than ever, we must deploy powerful frameworks and exercise judgment to realize true value in chaotic markets. This is doubly true for institutional investors looking to gain a sustainable advantage and accumulate long-term value in the digital asset space.
The importance of fundamental analysis
In any financial market, speculative hype can sometimes overshadow sound investment strategies, such as the dot-com bubble, the subprime mortgage crisis, and countless other examples. .
In the crypto space, speculative hype is fueled by social media chatter and the feeling that the next big token bounce is right around the corner. Financial Times reporter Joshua Oliver wrote a book about this phenomenon (“Hype Machine”) focusing primarily on Sam Bankman-Fried and the cautionary tale of FTX.
Fundamental analysis provides the necessary foundation to understand the intrinsic value of digital assets, beyond the overt hype and propaganda disseminated by smart marketing teams, founders arrogant project or airdrop farmers (those participating in airdrop hunting).
Important factors to consider when weighing the value of a Web3 investment include the track record of the project development team, the underlying technology used, the actual use cases vs. construction and tangible evidence of real-world adoption.
This type of realistic analysis allows investors to look beyond the short-lived market excitement and evaluate the long-term viability of a project. This is an approach that relies less on short-term trading profits and more on sustainable value creation. That said, many projects that are unlikely to last long can still make some investors rich.
Beyond Memecoin
The appeal of memecoin is understandable, with many investors even ignoring media rumors and viral marketing activities. Although often ridiculed for their lack of intrinsic value, memecoins have surprised the world with their performance.
The value of DOGE increased by 12,000% in the first five months of 2021 (despite an 80% price drop in mid-December). More recently, Dogwifhat and Pepe achieved similar results, with Dogwifhat helping liquidity hedge fund Stratos post a 137% return in Q1.
Memecoins often lack fundamental value and utility and their “profits” will weaken according to the beliefs of traders participating in speculation. That doesn’t mean it’s easy for everyone to make memecoin projects valuable. Entering the memecoin market without thorough analysis and a clear understanding of the risks involved is gambling, not investing.
Understanding fundamental analysis, especially in volatile markets like crypto, is extremely important. These tools empower investors to make decisions based on meticulous research and solid evidence, rather than the reckless impulse to pursue goals.
Valuation frameworks, including those that can be used to value memecoins, can help provide insight into market dynamics during times of volatility. By using these techniques, we can all see through the hype.
“Fairy dust,” to quote McConaughey’s character in “The Wolf of Wall Street,” may be magical for a lucky few, but ineffective for most others.
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Viet Cuong
According to CoinDesk
