Before we even begin talking about buying meme coins, it is important to mention that almost all meme coins are trash, which means that they are highly speculative investments, and one should definitely only use the capital that one can afford to fully lose.
Meme coins have a high price correlation Bitcoin. The correlation is positive, which means that when bitcoin’s price begins to move higher, more coins are on the move.
Bitcoin and its price action
Bitcoin, by no means, deserves to be lumped in with meme coins: it has been adopted by institutions and there are several Bitcoin spot ETFs that have gathered interest. During the past few days, there was some outflow in one of the top bitcoin ETFs, GBTC. However, bitcoin ETFs snapped their outflow and attracted a fresh inflow of $418 million yesterday.
This shows that the bulls that left the market are back and that bitcoin's price may ride higher once again, continuing its journey towards $100K (while the immediate support level is around 58K as shown on the chart below).
One may think that 100K is not a realistic target, but we are in a bitcoin halving period. If we look at the previous bitcoin halving period, the price of bitcoin experienced significant moves before and after the period—most of the gains occurred after the halving event.
For instance, during the first halving period, the price surged 416% one year before the halving, and increased one year after by 7,715%. During the second halving, the price gain before the one-year halving period was 110%, and one year later it was 283%. For the third period, those gains were also significant in value; the one-year gain before the halving timeline was 76% and the one-year gain after was 423%. For the most recent one, one-year gains before the halving were 50% and one-year gains after 200%.
Historically speaking, when there is a rally in bitcoin, bitcoin’s dominance in the cryptocurrency space experiences adverse influence as investors rush to buy other coins, especially meme coins. If this rally takes the price of bitcoin towards the 100K price level, it could significantly increase the meme coin speculation period.
What is a meme coin?
A meme coin is a type of cryptocurrency that gains popularity primarily through its meme-based marketing and community engagement rather than any technological or fundamental value. These coins often feature catchy names, logos, and slogans, which are shared widely across social media platforms, creating a viral effect.
While some meme coins may start as jokes or parodies of more serious cryptocurrencies, others may evolve into legitimate projects with active communities and real-world use cases. However, many meme coins are considered highly speculative and volatile investments, with prices driven largely by hype and speculation rather than underlying fundamentals. Notable examples of meme coins include Dogecoin, Shiba Inu (SHIB), and Safemoon.
How do I look for meme coins?
Once again, I want to emphasize that most meme coins are equal to trash and have no fundamental value. Having said this, they could produce substantial gains if spotted in their early days. There are a number of approaches that one could adopt.
A conservative investor who does have a somewhat risky appetite could look at the top 100 coins on the Coinmarketcap list and choose the ones that are trading under one cent, such as Shiba Inu, which is in the top 100 coins on the Coinmarketcap list.
An investor should not focus on one coin. In fact, he or she should look at all the coins that are trading under one cent but are still in the top 100 list and split the capital amount (which they are fully comfortable losing) equally across all of them. In this way, you have your risk well diversified, and you have exposure to those coins that are not only highly popular across their community but also have a decent market cap, which means there is less risk in terms of slippage when you will need to sell them.
An investor with a slightly higher risk appetite could skip the top 100 coins and look at the coins from the top 101 to the top 300, and use exactly the same approach to gain exposure to them.
How to Take Profits
Given the fact that all meme coins have no fundamentals and are highly likely to fail, an investor should keep a close eye on the bitcoin rally as their first point of action. As long as the bitcoin price continues to show upward momentum and there is no more than a 30% retracement, the chances are that the bitcoin rally will continue, which also means that meme coins will move higher.
In addition, an investor who has invested in those meme coins should adopt very strict stoploss/take profit rules—in most cases, one should use a 4-hour time frame in terms of their price analysis and have 9-SMA (simple moving average—a technical indicator) or 21-SMA as the point of booking the profit.
How do I enter?
The entry point could be of two types. Firstly, an investor could look at the break-out strategy, and in most cases, it should be the previous all-time high or at least a four-week high. An investor could look to buy at the price when it trades above the two highs mentioned earlier.
The second strategy could be where a trader could use the 4-hour time frame and look to buy the meme coin only when the price has broken above the 21-SMA on this time frame and the top loss is just below the previous recent low.
Other important things to consider
Meme coins are mostly famous among investors with little capital, and for them, transaction costs are very important. In the current rally, Solana’s blockchain is extremely famous due to its ultra-low cost of transaction. This means that most of the meme coins are going to be more popular on Solana’s chain because of the lower transaction fee. For instance, not many people are going to favor paying 30 dollars in terms of the transaction or gas fee when they are only investing 50 dollars.
An investor or trader could use aggregator tools and websites like Birdseye.so which give you more information in terms of trending coins on each chain, and use the momentum strategy on them. A momentum strategy that I find highly useful is where one sees a positive percentage gain for a meme coin on 4 hour, 24 hour, 3 day, and 7 day periods.
If a meme begins to lose momentum over a 24-hour period, that would be the first flag to dump the trash. A conservative investor could wait a little longer, say 3 days, but it generally creates more risk. Using the Birdseye aggregator tool, an investor can see meme coins on different chains such as Ethereum and others, and as long as the original chain, for instance, Solana, which seems to be popular in the current rally, has momentum behind it, it is more likely to have a meme coin with relatively better odds stacked in your favor.
To conclude, an investor and trader must understand that meme coins are highly speculative forms of investments, as most of them have no real value or fundamentals behind them. However, if one is comfortable risking capital that they can afford, they could look at any one of the ways to have exposure as the bitcoin rally is still in the early stages.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Naeem Aslam
I am a former Hedge Fund Trader with over 15 years of experience in investment banking. During my early career, I was awarded a national award (Young Irish Broker) in 2010. Over the years, I have worked with Bank of America in equity trading and with Bank of New York in hedge fund trading. I specialize in Blockchain technologies (cryptocurrencies and digital assets) and Sustainable Investments. In my career thus far, I have also extensively covered Equities, Commodities and Forex.
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