If you look at shitcoins (e.g. AuroraCoin,BeeCoin) and compare them to innovative coins (HeavyCoin,MyriadCoin), they both go down after an initial pump. Shouldn’t HeavyCoin slowly rise because of its intrinsic innovation value? Let me phrase that the other way round: Why is an innovative coin more valuable than a stupid clone? Answer: It is not. In the current climate innovation does not actually make a coin valuable. At least for now.
Among altcoin traders the reasoning of fundamental analysis usually goes like this: Looking at a new coin, search for innovation. If a coin innovates, it will rise in value, so buy while it is still cheap. Buying can happen via IPO, over-the-counter, or on exchanges. While the basic strategy is sound, I argue that the aspect of innovation is overrated until this crypto frenzy ends and most coins die.
What happens with innovative coins is pumping, so the smart trader sells at the temporarily high price getting nice profit. It would be unreasonable to hold. You can always rebuy later, when the price dropped again. At this point the trader has BTC again. The coin price is falling due to panic sells. The trader can rebuy low or invest in another coin. Another coin promises a nice pump soon, while rebuy means long waiting. Hence, the reasonable trader leaves the coin. Reproduce this reasonable behavior to man traders and it looks like locusts hopping from coin to coin.
In this climate innovation is actually not that important. It is important to stand out of the crowd of shitcoins to become the target of a pump’n’dump. Technical innovation is one way to achieve that, but there are others. For example, country coins are a marketing innovation. Effectively, you only need to have a unique and interesting story to tell as a coin. It is fascinating to watch coin creators come up with new stories.
The conclusions depend on what you are. As a developer of an honest innovative coin, this is depressing. My advice would be to ignore the price. It does not tell you the value of your product. Wait for the reckoning, when most altcoins die, then keep working and simply survive. Money will eventually flow back to the good coins.
As a trader this theory gives you a model of how the market behaves. Find the next wave to ride and make some profit from the pumps. If a coin is a scam or not, is actually not that important. You can make money from obvious scams. Simply make sure to stay ahead of the locust swarm to not become a bag holder afterwards.