The outlook for cryptocurrency recently has been both positive and bullish as both Bitcoin Spot ETFs and Ethereum Spot ETFs have been approved around the same time of the halving. As the horizons for cryptocurrency are expected to yield much fruit for holders and traders due to the incoming bull market, it also attracts new participants to the market who are looking to maximize the opportunities of cryptocurrency. 

Unbeknownst to beginners, they’ve entered one of the most volatile and cutthroat markets in the financial industry. Beginners have a tendency to be gullible and jump the bandwagon from one shiny coin to another. This may be because one is chasing a towering pump or a coin being advertised by their favorite celebrity. In the process, new market participants notice that their capital is being sucked away following the crowd. While chances of profits are slim to none with that strategy, doing your own research is ultimately better than jumping the bandwagon.

Recently, influencers and celebrities have been entering the cryptocurrency scene. While this is a good sign for mainstream acceptance, there is still a lot to work on when it comes to mass adoption. Celebrities would enter crypto and use their wide reach to advertise a coin to their audience. While this may seem like a golden opportunity for a beginner, there is a lot more than what meets the eye.

Metrics beyond the charts

For beginners, seeing a sharp green candle towards the upside is enough to convince them to go all in on their investment. However, there’s a lot more to a coin beyond its charts. There are a few parts of a coin that need to be researched before investing in it.

Market Capitalization: Market cap is the total amount of capital that is circulating in the coin based on the current circulating supply. It serves as a reflection of the value of the coin or company. If the entire fixed supply is calculated in, the total value of the coin will then be its fully diluted market cap. If the fully diluted market cap is ridiculously large while the current market cap is low, it’s a telltale sign that insiders have the power to dump the charts once their tokens become unlocked from vesting.

Total supply: Before a smart contract is deployed, the developer is able to set the cap for the total token supply.  Alternatively, they are also able to burn more tokens to decrease the supply to increase token prices. However, there are some smart contracts that allow the developer the ability to mint more coins, effectively causing harm to the price of the token due to more tokens taking up a portion of the constant market capitalization.

Liquidity: This refers to the efficiency for traders and investors to buy and sell a token with minimal or no slippage. In a market with buyers and sellers, everyone would like to get the most accurate amount that they will be exchanging to avoid unnecessary loss. In low market cap coins, the liquidity tends to be less. This causes difficulty for traders to transact, incur higher slippage, and result in loss due to their orders being filled at different prices.

While these elements are crucial to understand before trading cryptocurrencies, beginners are usually unaware about this as they are fixated more on the price and its upside potential. Factors such as unit bias, honeypots, and top holders are some things that beginners don’t factor in when considering a coin to invest in.

Cases where jumping the bandwagon has led to a loss

Recently, especially in the Solana ecosystem, celebrities have been launching their own memecoins. While memecoins have been the narrative that has outperformed all other narratives in the first half of 2024, the rewards are just as high as its risks. 

$JENNER on Solana has striked a buzz across crypto twitter as a celebrity unexpectedly announces that they are launching their very own memecoin. While this may sound enticing for fans of Caitlyn Jenner, crypto natives question the legitimacy of its investment. With a little bit of research done, a known crypto scammer called Sahil Arora helped develop the coin. After the explosive launch of $JENNER on its first day, reaching up to an impressive $40 million market cap. However, the top holders such as Sahil then sold their holdings which dumped the coin all the way to its current market cap of $7 million, leaving fans who bought higher to lose their money. Caitlyn Jenner has now transferred $JENNER to Ethereum.

‍

$LTT or Luxury Travel Token was recently advertised by Filipino Influencer Christian Xian Gaza with news that it will pump tremendously on June 2, 2024. It is discovered in the smart contract of $LTT that the developer is able to mint an endless amount of $LTT which can further dilute the price of the token, putting holders at a higher risk of loss due to possible negligence of the developer. Though his token rallied 4x from his call, it was immediately met with a swift dump below the levels of his call. While there are those who gained from Xian’s call, there are equally may be more people who became exit liquidity as the promised pump only lasted for 30 minutes.

‍

As the bull market continues to rage on, there will be more and more personalities outside of cryptocurrency who will leverage their massive reach to advertise their coins. It is important to do some due diligence before considering investing in them. Many of these coins may have top holders from the start of its launch, holding majority of the supply and ready to dump on clueless investors after celebrity hype. Even worse, the smart contract can have a honeypot where buyers are prohibited from selling or have a sell tax where a large portion of their sell orders will be taken out. While some calls from celebrities may be backed with legitimate fundamentals, doing your due diligence mitigates you from incurring unnecessary risk and losses in this cutthroat market.