Hedge fund manager Joe McCann and VC Rennick Palley shared their rules for assembling a portfolio of memecoins and where they see the best opportunities in the space now.
Memecoin WIF has increased roughly 15-fold since the beginning of the year.
(dogwifcoin.org)
Posted August 28, 2024 at 2:20 pm EST.
Memecoin investing might not seem like the most natural thing for hedge fund managers and venture capital investors to engage in, but two of them shared on the latest Bits + Bips podcast that it’s something they readily do because of the potential for these coins to skyrocket.
“Most people scoff or laugh at something like memecoins,” said Joe McCann, the CEO and founder of hedge fund Asymmetric. “[But] I point to the Dogecoin example every time because my job as a hedge fund manager is to make my [limited partners] money.”
McCann said not being elitist about investing in memecoins led him to put some money into BONK last October, which has since increased about 1,500% from that time. He said his firm maintains a sizable position in BONK.
Similarly, Rennick Palley, the founder of crypto VC firm Stratus, said on the podcast that he began building a position in memecoins — in particular, WIF — in the fourth quarter of 2023 when BONK just started its run.
“One of the reasons why we got interested in WIF [was] we thought it was going to kind of be like a BONK echo, you know, just like SHIB was a DOGE echo,” said Palley. “And the market cap we bought in, gave us huge asymmetry.” WIF has increased roughly 1,400% since the beginning of the year, and Palley noted that Stratus has kept most of its position.
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How They Build Their Memecoin Portfolios
All that said, McCann and Palley adhere to strict rules when assembling their portfolio of memecoins.
The first is to only allocate a very limited percentage of assets to the sector.
“We have a concentration risk policy where if anything’s not in the top 20 by market cap, we don’t allocate more than 2% of our funds AUM. Period, end of story,” said McCann. “Would I have liked to buy a lot more BONK? Yeah, but that steers away from the risk management policies that we have in place for a reason.”
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McCann noted that if you invest in something with a quarter or a half of your funds’ assets under management and it doesn’t work out, “you’re in a hole forever. But if [you allocate a small amount and] it works, hey 2% times a thousand, it’s pretty good.”
For Pallek’s part, he said that “our portfolio construction…it definitely doesn’t take too much risk on the way in; very small portfolio exposures on a relative basis, at least from our cost basis.”
Their second rule is to currently stick to investing in blue-chip memecoins, which McCann defined as being anything having above a $1 billion market cap.
At the time of writing, only six tokens meet that criterion: DOGE, SHIB, PEPE, WIF, FLOKI and BONK. Of those, DOGE has a market capitalization of $14 billion, roughly the same as all the other five combined.
“If you’ve reached that level of market cap, there’s a lot of trading activity, which means the exchanges want to list it because they want to make money on it, especially if it’s trading primarily onchain,” said McCann. “Then you get all the market makers involved. They want to make money on it. It’s a self-fulfilling prophecy.”
Pallek noted that “the [memecoin] market has kind of become this power law where if you made it above, you know, $500 million, $700 million in market cap, you’re now in sort of like the blue-chip meme space. And then everything else is kind of getting like left for dead.”
The Outlook for Memecoins
Both Pallek and McCann believe that some of the blue-chip memecoins still have room to appreciate from here.
“It’s a totally different world today than it was in January, because [back then] it was just a lot less saturated than it is now,” said Pallek. “And those memes that have kind of been minted into the blue-chip category, I think, are the ones that are going to benefit from most of the flows going forward this cycle.”
McCann speculated that more retail investors will become involved in investing in memecoins, potentially even via sports betting sites such as DraftKings or FanDuel, further boosting demand and prices.
“We still have a pretty sizable [memecoin] position that we’re comfortable holding, largely because we don’t think the memecoin thing is going away,” McCann concluded.
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