The High Market Cap Trap

Like many newbie crypto investors with some spare cash, I started reading and watching various crypto influencers and gurus to help me decide which cryptocurrency to invest in. Most of them mentioned certain popular cryptocurrencies repeatedly, and after hearing their endorsements, I decided to invest some cash in each of those popular cryptocurrencies.

Well, months passed and these popular, over-hyped cryptocurrencies didn't show much potential. They would have a rise of 1 to 2 dollars maximum and while I was extremely ignorant of the market, I was waiting for some crazy high pump like Ethereum or Solana pulled, but to no avail.

High market-cap cryptocurrencies have significant pitfalls that few people seem to mention. The obvious to me now, is the law of diminishing returns. According to this law, when more resources are used, the utility obtained from anything eventually declines. In the context of cryptocurrencies, this means that as the market cap expands, it gets harder for the price to maintain its ascent.

What causes this to occur? Well, a number of factors are involved. The first is how important the rule of supply and demand is. A cryptocurrency's demand can exceed its supply when it is still relatively new and small, which would cause prices to rise quickly. The supply begins to catch up as more investors enter the market, though, and the demand might not be able to maintain the same rate.

Additionally, some early investors who invested at lower prices may start selling off their shares as the price increases. The rising price momentum may be stopped by this selling pressure, making it more difficult for the cryptocurrency to continue its quick advance.

A cryptocurrency's high valuation also draws the interest of institutional investors and more powerful market actors. These investors have a significant amount of funds available to them, enabling them to influence the market to their benefit. In order to temporarily lower the price, they may use techniques like short-selling or placing significant sell orders, which can scare the average retail investor.

After realizing my crypto investing approach wasn't producing the desired results, I turned to different crypto forums to gain a better understanding of the market and find answers. And lo and behold, the answers I needed were right there in front of me. In these forums, I discovered that many people wanted recommendations for low-market-cap coins. But it wasn't just about the market cap; these coins needed to have solid utilities, a reliable team, smart tokenomics, and high potential. I also learned to be wary of venture capital coins, as they often indicated artificial pumps or teams that had compromised their integrity.

Having made the mistake to spend plenty of my spare cash on these shiny cryptos, I started looking at low-market-cap coins. Thankfully, my picks were better, but still, there were traps; coins that crabbed and crabbed while being advertised as some magic solution for the fourth industrial revolution landscape, projects that were unfortunately hacked and couldn't recover, foreign to US projects that never seemed to deliver. Turns out, the crypto world isn't so easy to navigate.

To sum up, beginner crypto investors need to be extremely careful. And the time this article is being written is the perfect one to warn the beginner crypto investor of the need to make wise choices, beyond the generic algorithm gurus they see on social media. I believe we are just months before a significant bull run, and the investing choices we make now, are of utmost importance. Even one good coin pick can have a massive impact on our crypto portfolio, but plenty of bad ones could sink it like the Titanic.

So a reader would ask, "Where should we invest for the upcoming bull run?" I'm not here to tell you. But, I'm here to suggest the thoughtful act of researching, because I trust your intellect. I would only advise you to search beyond your popular feed page, your favorite Youtube influencer, your Twitter "insider", or even these anonymous forum geniuses that nobody knows their motives. Open up a crypto coin marketplace and begin discerning. Ask yourself if a project could potentially have a significant market reach, and act accordingly.