What about market caps though?
Don’t buy this coin it already made 500x!
Don’t buy this coin it’s too pumped!
I constantly read such statements, and often they are true, but not always.
Solely relying on the previous % gain is not enough to take into account.
What do we need to look at? And how does market cap come into play?
I will go over these questions in this post.
I have noticed everyone is crazy detailed with chart patterns, trend lines, with curves, with Fibonacci curves with targets, but barely anyone is looking at the market caps.
So I decided to take a deeper look.
The 2018/19 bear market left a scarr among many crypto traders, the shock of losing vast amounts of money in a short period was so great that it has become one of the driving factors for many traders.
While being careful not to get rekt is indeed important, the main motivation and incentive shouldn’t be driven by fear.
Fear after all is the strongest emotion, and we cannot be guided by emotions.
So how do you get rekt? By not taking profit and by FOMO
In other words either holding an asset through a Bullrun and not taking profit, or buying too late when an asset is already over-pumped.
I agree you shouldn’t be doing any of the above, but it ain’t so easy.
I see players advising against a 5–10mcap “because it’s too pumped” and then turn around and buy XRP or LINK.
The perception of being “pumped” seems to be distorted.
So let’s get it straight, what does pumped mean? And how does it affect a future investment? And how does market cap come into play?
Pumped for me means a project reached a market cap where the possibility to gain more is smaller than the possibility to lose more.
For this we look at the coin ranking at coinmarketcap.
I see many Link & xrp shillers throw out outrageous predictions.
Let’s say I predict $XRP at 10$ each
This means about a 52x from here, this would give it a 452 BILLION $ market cap, or in other words, 2.7x the mcap of Bitcoin and nearly double of ALL the crypto market cap atm.
So if a target demands a completely different world setting it becomes unrealistic.
Is it impossible? No, but its pure gambling.
Now the projects I invest in sit at market caps of around 500k to 25m$
Or in ranks: rank 500-rank 150
These are areas of great volatility, of great risk, and great potential returns.
I have noticed a pattern in these areas and I have analyzed and memorized some events and came to a few conclusions:
there are 4 different market cap stages where a project can be in
microcaps are not only hidden but truly invisible gems, its most pure luck to stumble on to a solid one. It's a must-buy, and once the word gets out it is very unlikely it will ever retrace back into the microcap region again.
Depending on the market a project can hover between 1–15m for a while.
Many factors come into play, longterm it is still a very good entry.
I have noticed most projects start their first retrace at 10–15m$ some peak to 20m and then go back to 15 just to retest again.
$LCX is a great example of why you shouldn’t stay away from “overshilled” or “overpumped” projects.
A very good project under 10mcap is still a steal, that’s why it’s very likely it could go from 1million to 10 without any decent dips.
Just to be clear from 1 to 5m are 400%
from 1 to 10m 900%
$coti another example, it made a run from 1 to 10m sits at 10mcap and 900%, and its still not “overpumped” in my eyes.
If you look at the fundaments, like 7 million TX volume on-chain, their mcap is still laughable.
Constellation $DAG is a great example of a project that failed to break out of the low-cap area, it started to retrace at 20mcap
A very dangerous and difficult stage for a project, u aren’t cheap enough anymore for the gem hunters, but also not established enough for the big lounge. I rarely buy in this area, the fundamentals must be outstanding.
midcaps have their most difficulties at 30–50m$ when they try to break out of their range.
Tomo failed to break out of its mid-range, retraced at around 40–45m
Unibright seems to have successfully made the transition from mid to low cap, a truly impressive run.
I usually don’t touch them at all, you need a full Bullrun to make decent gains, and it can happen that if the project doesn’t perform excellently it will go back to the midcap area.
So to bring it together
- Pumped doesn’t always mean expensive
- Market caps do matter! Try to establish a range and look for patterns
- Fundamentals are key
- Don’t get blinded by big % numbers, analyze the market cap and where the project is, and where it could.