What makes a crypto project pump or dump?
The Fundamentals of the Project:
Each credible project should have a website that outlines its purpose, the team’s credentials, and the long-term goal. They should also publish a ‘white paper’ (like a company prospectus) and their ‘tokenomics’. Tokenomics (which doesn’t always apply to NFT projects) is their total coin/token supply and distribution breakdown. With this research on hand, you will be able to estimate the potential that coin/token could make in the medium/long term – if they managed to succeed with the following factor.
The Community Support Level:
Crypto & NFT projects rely on the social reputation generated by their community power. Therefore, each project seeks as much collaboration as possible with other credible projects. Regular announcements of these partnerships gradually develop/expand its community size (i.e. measured by the number of active addresses that hold that particular coin/token or NFT, and the number of Twitter/Telegram followers etc). Ultimately, the stronger the community support, the more likely the coin/token or NFT project will gain value.
The above factors are only effective if the overall crypto market is performing well, i.e., in a bull market. Ultimately, the crypto market’s performance is extremely sensitive to global macroeconomics… and its direct effect mainly on Bitcoin. Accordingly, in most cases, Bitcoin price still drives the mood of the whole market. As little as a negative comment by a senior US Government Official could instantly bring the Bitcoin price down and with it, the entire crypto market could dump anywhere between 5 -10% a day! in a bull market, the recovery process can be as rapid as well.
Long-term #hodlers eventually learn how to cope with this volatility, but regardless still, it can be a nerve-wracking experience each time, particularly for inexperienced investors. This is where short-term traders can get hurt badly!
As a smart investor (especially for medium-term traders), it’s essential to follow the economics and financial-related news that could affect your portfolio’s short- and medium-term performance. Then you don’t make irrational decisions.