Despite a significant rise in investments over the years, cryptocurrency still remains one of the most controversial topics of today’s global economic environment. Some view it as the ‘next big thing’ on the internet while others tout crypto as being downright ‘evil’. Some believe it to be the latest ‘fintech fad’ to hit the floor while others think that crypto has the power to challenge the political, social, and economic underpinnings of modern societies. And each side has its own cryptocurrency analysis to support its ideology.
Which of these thought processes holds true? It doesn’t matter, to be very frank. The latest crypto market news and numbers are enough of an indication that this phenomenon is here to stay. The global crypto market size was valued at $1.49 billion in 2020 with projections for growth at the rate of 12.8% from 2021 to 2030. The year has gone by, in itself, has been a breakthrough in terms of the market highs that it achieved. Every cryptocurrency market analysis today speaks of an investing space that is beginning to mature. A lot is happening, and if you are a serious investor, the time to join in and ride the wave is now!
If there is one word that can be used to define the crypto market, it is ‘Volatility’. Take Bitcoin as an example. In 2010, the price of one Bitcoin was roughly $0.09. Since then, the prices have gone up by tens of thousands of dollars, sometimes rising or falling by thousands within a single day’s trade. Crypto is a volatile investment avenue simply because of its newness. The market is still finding its bearings and new investors are largely driven by emotions rather than sound cryptocurrency analysis and predictions. In a bid to build wealth quickly, newbie investors aren’t shying away from experimenting with their money. Some of these pay off, while others end up in losses.
The last year witnessed a mad rush amidst investors to jump onto the crypto bandwagon. And the market welcomed these new players with open arms, giving away handsome returns on trades. But towards the end of April, the market witnessed a spectacular crash, with the likes of Bitcoin losing almost 50% of its value. Investor wealth depleted massively and this trend of highs and lows has continued to this day. Persistent volatility is part and parcel of the crypto market, at least until the market reaches a certain level of maturity.
Cryptocurrency market analysis – 5 factors to watch out for
The persisting volatility of crypto markets has, more or less, mandated the need for smart analysis to ensure investment decisions are driven by true data rather than market emotions. The very nature of this investment segment requires even newbie traders to conduct in-depth cryptocurrency analysis or risk losing their money to bad investment decisions. Here are 5 factors that you can watch out for when trying to make sense of crypto market movements:
#1: Market Capitalisation
In simple terms, the market cap is the total value of coins that have been mined. This value aids in crypto market analysis by providing indications as to how stable an asset is. It can also provide insights into the asset’s growth potential and safety as an investment avenue. However, one must keep in mind that just as bigger ships find it easy to navigate stormy seas, large-cap cryptocurrencies tend to manage market volatility way better than the newer kids on the block. Small-cap assets are more susceptible to the whims of the market but will be relatively easier to invest into, owing to their comparatively lower price range.
Circulating the supply of crypto tends to be a much better metric for calculating market cap than total supply. It uses the best approximation of the total number of coins in actual circulation in the market rather than the total amount of coins in existence. Using this metric to calculate the market cap of a particular coin gives a much clearer and more accurate picture of the asset’s current state than the total market cap. This gives you a fact-based outlook on how an asset is currently performing, steering the investor away from the biased viewpoints available on the social crypto-sphere.
#2: Trade Volumes
The volume of trading in crypto stock tends to rise as prices soar. FOMO has always been a major driving factor for investors in this sphere and hence, a rise in prices tends to create a feeding frenzy in the market. Expert cryptocurrency market analysis believes changing trade volumes to be an indication of investor choice. The idea is that if price and volume fall together, you can expect it to indicate a point of exhaustion in the market, meaning that a trend reversal is in the offing. Many similar hypotheses have been formulated and trade volume provides the confirmation or rejection of their being in play. But these numbers can be faked with ‘spoof trading’ practices to create false trends in the market. Investors are, therefore, suggested to use trade volumes as market trend indicators with a reasonable pinch of salt.
#3: Charts and Patterns
Understanding cryptocurrency details and performance data requires much technical analysis. Technical chart patterns are strong indicators of whether a price trend will continue or fizzle out. Everything from the head-and-shoulders pattern to triangles and triple and double tops and bottoms can guide you to make cryptocurrency analysis and predictions based on trends as they emerge. Being able to read market charts will require study and practice, but these are the biggest tools in your arsenal. Technical chart analysis can be the difference between blindly making trades based on market emotion and taking informed investment decisions on the basis of true data to generate predictable profits. However, this is a strategy for a relatively shorter time horizon.
How many people are using crypto coins and what purpose are those coins being used for – these factors can have a major impact on price movements in the market. Crypto market news such as Paypal allowing Bitcoin as an accepted mode of payment will create a surge in usage and change the overall circulation dynamics of the particular coin. The more these coins are used for buying and selling goods/services rather than being held as an investment, the more the market will rise. This is simple supply-and-demand-play – one of the most fundamental influencers for price movements of any commodity out there, crypto or otherwise.
There are a number of Blockchains that have a strong use case for the upcoming technological advancements using Blockchain technology. The more accessible a blockchain is, and the more uses it can be put to, the better value proposition it will offer in the future.
The skepticism surrounding crypto largely stems from the trustworthiness of projects available for investments. There are various ‘altcoins’ coming up for circulation and while many are quickly establishing themselves as legitimate investment options, others are turning out to be no more than Ponzi schemes. Hence, a large part of crypto market analysis revolves around evaluating the project that one is considering for investment. The growth potential of the project, ethics and credibility of the team behind it, the number of tokens in circulation, and its current status are all factors to look out for. Once you know what to look for, the task of weeding out the good projects from bad ones will become easier, thereby providing you with more lucrative investment options while reducing the chance for setbacks.
Perhaps the most important question you must ask yourself before putting your money in any form of cryptocurrency is ‘why you are doing what you are doing?’. Are you interested simply because of how trendy crypto has shaped up to be? Are the mouth-watering returns of last year the reason behind your attraction toward digital currency? Or do you have a more compelling reason behind your decision?
Any form of investment requires research, experimentation, and a certain degree of luck. Crypto demands all these factors in a much bigger way! Make sure your decision to invest is guided by sound cryptocurrency market analysis rather than a simple fear of being left behind. Have a great time investing!