In Defense of Fundamental Analysis Amid Memecoin Mania

In March 2023, memecoin trading activity reached volumes last observed before the crypto market’s collapse in 2022. This revival underscores a recurring pattern: traders can be quickly influenced by hype and fear of missing out (FOMO), leading them to make impulsive investments based solely on instinct and avarice. In our publication, “Digital Asset Valuation Framework,” the HashKey Capital team and I advocate using fundamental evaluation techniques and advanced technical analysis to manage market volatility and steer clear of memecoin craze pitfalls.

As a researcher studying the current market landscape, I cannot stress enough the importance of employing strong frameworks and maintaining a clear-headed perspective during these volatile times. This becomes even more crucial for institutional investors seeking to establish a lasting advantage and generate consistent growth through their investments in digital assets.

The Importance of Fundamental Analysis

In the realm of finance, there are instances when irrational excitement overrides sound investment principles. Recall the dot-com bubble and the subprime mortgage crisis, among other incidents.

In the world of cryptocurrencies, speculative excitement is reaching unprecedented levels, fueled by constant buzz on social media and the belief that the next big winner is just around the corner. Journalist Joshua Oliver from Financial Times has penned a new book titled “Hype Machine,” which primarily explores this phenomenon through the lens of Sam Bankman-Fried and the cautionary tale of FTX.

See also: Dan Kuhn – In Defense of Meme Coins

Through fundamental analysis, we delve deeper than the surface-level hype and promotional materials surrounding a digital asset. This method allows us to assess its true worth based on intrinsic factors such as the team behind it, the technology being used, market conditions, and other relevant fundamentals, thereby providing a clearer understanding of its real value.

As an analyst, I would emphasize the significance of several key aspects when evaluating the potential value of investing in a Web3 project. Firstly, I would examine the team behind the project, taking into account their previous accomplishments and experience in the industry. Secondly, I would assess the underlying technology, focusing on its uniqueness, scalability, and potential to disrupt existing solutions. Thirdly, I would consider the practical applications of what is being built, evaluating their feasibility and market demand. Lastly, I would look for tangible evidence of real-world adoption, such as partnerships, user numbers, or other metrics that demonstrate traction in the market.

This type of traditional analysis allows investors to peer beyond market fads and scrutinize the enduring potential of a project. It’s a strategy that focuses less on immediate profit from trading and more on generating value in the long run. However, it’s important to note that some projects lacking long-term viability can still yield profits for certain investors.

Beyond Memecoins

Memecoins, which often lack intrinsic worth and practical application, experience fluctuations based on traders’ belief during speculative activities. However, it’s essential to note that you cannot merely wish for a memecoin to gain value. Engaging in memecoin trading without conducting proper analysis and acknowledging the inherent risks equates to gambling rather than investing.

As a crypto investor, I can’t stress enough the significance of conducting fundamental analysis, especially in today’s volatile markets. By employing this approach, I am able to make informed decisions based on thorough research and tangible data, instead of being swayed by the allure of the next seemingly impossible moonshot driven solely by hype or impulse.

In times of market volatility, valuable evaluation methods, applicable even to memecoins, offer a clearer perspective on market trends. By employing such techniques, we can distinguish between hype and substance, as eloquently put by McConaughey’s character in “The Wolf of Wall Street,” “that sparkle for the fortunate few, but largely ineffective for the rest.”

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.