Pump and Dumps:
This is the most common in crypto. There are over 10,000 coins listed on coingecko and believe it or not not all coins get listed. I would say there’s comfortably less than 1000 that do anything remotely useful and I’m probably stretching it at that.
So what are all these coins then? Well Anyone can start their own coin on ethereum and call it anything they want, alter the supply, the permission on what they can do with the coins, how they are distributed etc. These coins with no inbuilt utility are referred to as shitcoins. Some try to build in some limited and simple utility, make fancy websites, twitter feeds, white papers etc to try and look more legit if they are going for a bigger PnD. Other strategies include sending coins to random wallets to trick data on how many people hold the token and transaction volume. I have PENIS and HOT LOVE coins in one of my wallets and I can assure you I did not buy them myself. But this is one of the metrics poochoobers use to “value” a token. That’s the next thing influencers on twitter and youtube are almost always paid shills. I just ignore them for the most part. There’s always exceptions but this is the vast majority.
So how do they make it pay? Easy start a liquidity pair on uniswap or any exchange and when they add the ethereum and their shitcoin in the pair they set the opening price. As they are the only pool provider they can manipulate the price. They start with super low liquidity so hardly any eth or coins in the pool. They then Buy the coins in the pool (essentially this adds eth) and as the price is simply the shitcoin to eth ratio the price rockets quickly. If the pool starts with 100 coins and 0.00001 eth then the price is 0.0000001 eth per coin. If they add 0.00001 eth to the pool they just doubled the price for basically no cost. This is how they make the chart look like it is going to the moon but there’s no buyers there. Now they have all the tokens in a wallet where they created the token waiting to dump in the pool so when other people start buying they start selling into the buy wave thats where you get these natural looking retracements on low buy in volume. Then when the buy pressure look exhausted they dump all the coins in their wallet (or a lot anyway) and in effect steal all the eth in the pool causing the instant crash. This is unbelievably common. So you see if you buy a coin and it goes 10x there’s so little eth in the pool you will hardly pull out any money when you sell because the liquidity pool is so small.
If you are trading something off a centralised exchange you can look at the depth of liquidity one the dex you are using for example this Uniswap Info.
Systemic risk:
Crypto in general is still in the test phase essentially. Until it has an ingrained and substantial role to play in value transactions and the real world economy most of the value is coming from speculative buyers which are weak hands compared to purchasers requiring it for utility purposes. So if it ever comes to pass that it is not a viable long term solution for the problems it is attempting to address, its value could go to 0. Just don’t bet the farm, but I think this community is quite good at emphasising risk management for the most part.
Centralised exchanges:
These places have a history of letting their customers down. Starting with the first mt.gox which failed and lost 744,408 bitcoin most of which people never saw again it then went bust Mt. Gox - Wikipedia . Coinbase crashes all the time during peak trading times going up and down as do many other exchanges (How convenient). Binance and Bitfinex are linked to tether which is shady to say the least and provides a huge amount of the crypto spheres liquidity. If that went down you can kiss your on exchange coins goodbye as far as im concerned as it would be cataclysmic to Binance, Huobi, bitfinex and all the tether exchanges. They have also been known to shut down trading in major crashes. You can look into this more if you are interest but there a reason cold wallets are so popular.
Long term Holds:
There are very few coins i rate as long term holds (BTC, Eth, LINK, DOT, EWT a few others do your own research I could very well be wrong) if you look back to the top 100 in 2017 you will see many large coins fall by the wayside and are forgotten. A mixture of false promises and overvaluation of vapourware and some projects being made redundant from the pace of change in the space, it’s very very difficult to find something worth holding long term. Historical Snapshot - 17 December 2017 | CoinMarketCap
Crypto Winters:
The bear markets in crypto currencies have been brutal, dropping even the king BTC by about 85% from peak. A lot of the alts just died and flatlined to 0 and a 90-95% drop was common even for projects that survived today to be considered solid.
Fees:
Fees can kill any trader and in crypto some exchanges can be extortionate i.e coinbase vs coinbase pro. On top of that DEX’s like uniswap at peak times can cost $1000 a trade and $15 would be considered cheap. This is “gas” and is something to watch as it’s a killer.
Wallets:
If you do decide to get your own wallet, a few things to consider. Firstly DO NOT DISCLOSE YOUR SEED PHRASE. This is usually 16 random words. If anyone got that they have full access to your crypto. Second is GAS when you’re dealing with wallets when you send and receive your using the eth network and this is charged in GWEI (the decimalised version of eth like a penny to a dollar) gas costs are variable you can track them here https://etherscan.io/gastracker. Second is that all transactions on chain are final, no take backs. So if you send it to the wrong address that’s gone forever, so check, check and check again.
Regulation:
The ultimate rugpull. Only joking but this space is very new and moving very fast and we don’t have proper regulation yet and if it develops into something wallstreet doesn’t like will likely see the market cap come down fast in the short term. We also don’t know how personal custody will work. At the moment wallets let you be your own bank and im sure the powers that be don’t like you having anonymous autonomy over your money unfortunately. Theres even proposals that all wallets have KYC so you have full ID attached to your metamasks and ledgers. They have also passed a bill in Bidens Build back Better document (I’m a brit so i take no sides FYI) that has a section pertaining to crypto that ALL transactions over $10,000.00 are fully traced to the individual. Including those on a DEX like uniswap. This is due to come into force in 2023.
As you can see there are many variables that could influence the value of crypto going forward and this is just a dip of the toe introduction. I believe there is huge potential for innovation and growth in this market like that our generation has never seen but there’s also a lot of pitfalls along the way. Good luck and I hope you make a ton of money!
A link above to a shitcoin checker so you can see if you can actually sell (some shitcoins are written in to be unsellable in the token contract) . Thanks eth