The COVID-19 pandemic has completely altered the landscape of the global economy. For many, the past few years have been devastating, with businesses shutting down and people losing jobs. On the flipside, 2020 and 2021 have been big years for crypto – big enough to throw any cryptocurrency market analysis out of whack!
Against the backdrop of market uncertainty, Bitcoin and other forms of digital currencies began attracting the attention of investors, many of whom were completely new to the world of cryptocurrency investment. And, on an institutional level, entities like banks, finance houses, and even corporates have started looking at crypto as a legitimate form of investment. In October 2020, PayPal announced that its platform will now allow customers to buy, sell and hold Bitcoin. Many other brands have followed suit.
And all this attention has rendered quite an interesting picture for crypto market analysis. Here in this article, we will explore the current state of the digital currency markets and attempt to learn 7 smart ways in which one can glean actionable investment intel through cryptocurrency market analysis.
The year gone by has been especially good for crypto investors. Bitcoin has hit new all-time highs multiple times through 2021 and many major companies have chosen to buy into this form of stock. There have been incessant talks about crypto prices, with everyone from Elon Musk to that kid from your high school who had mined a few coins early on, voicing their take on crypto market analysis. The Biden Administration openly expressed interest in regulating the digital currency market, with other countries catching on to the idea as well.
There are many factors at play here. Institutional investments and government interest are just part of the equation. The pandemic-driven stress has brought a fresh wave of investors to the fore, all of whom are keen on getting high on the ‘crypto-craze’. Many of these investors do not have any crypto market analysis backing their buy and sell decisions. These newbies have brought much chaos into the market, with every wave (whether upward or downward) becoming bigger than the last as trades keep being driven by emotions. Bitcoin’s prices, for example, have taken investors on a rollercoaster ride through 2021. With drops to less than $30,000 in July 2021 after multiple high points of about $60,000 in April, these crypto prices touched an all-time high at $68,000 in November 2021. Calling the market ‘volatile’ is a bit of an understatement at this point.
As to the current state of crypto markets, here are 5 important takeaways:
The total crypto market cap reached $2.4 trillion in May 2021, up from $200 billion in 2019.
77 Tokens in the market are now worth over $1 billion each and about 1600 others are worth at least a million.
Bitcoin continues to be the market leader, but other currencies are now making significant dents on its market share.
Investors from different parts of the globe are now jumping onto the crypto bandwagon, with Nigeria emerging as second to the US for Bitcoin trading.
Coinbase going public in April 2021 was a watershed moment for the industry. However, since then, the company’s share prices have faltered following volatility in crypto prices.
And how high will crypto go from here? Cryptocurrency analysis by experts pegs these prices to breach $1,00,000 – it is only a matter of time. Volatility is expected in the short term but for investors who believe in going the distance, growth is definitely an anticipated reward.
· Supply and Demand: Unlike regular currencies, the supply of crypto stock is limited and it has shown a tendency of slowing down over the years. And the larger this gap between demand and supply becomes, the more momentum it will provide to the prices of cryptocurrencies.
· Cost of Extraction: Digital currencies don’t just show up from nothing. They have to be mined and this extraction process costs money as well. Fluctuations in the cost of mining new crypto stock is also an influencing factor for the crypto prices.
· Long Term Holders: A breakthrough year such as 2021 is usually followed by a slight drop in market numbers. Investors driven by the FOMO feel have cashed into/ suffered losses on their investments and have hence, moved on to other ventures. The stalwarts that remain are the long-term holders of stock who leave a lasting impact on crypto prices.
· Exchange influence: Decisions by crypto exchanges have a significant impact on market movements, especially for the less-popular coins with a smaller market cap. The decision of exchanges to list or delist these coins can create many ripples through the market.
· Competition: One of the most significant trends witnessed in 2021 was Bitcoin’s lost market share. New tokens are coming up every day as the barrier to entry into this market is relatively low. These new currencies are slowly eating away the market share of the popular giants like Bitcoin and Ether who are slowly becoming almost unaffordable for the average investor.
· Regulation: The Biden administration’s increased interest in regulating cryptocurrency has set off a chain reaction across governments from different parts of the world. Some administrations are actively recognizing crypto as a legitimate investment while others are considering banning this trade. January 2022 saw many changes on the Indian turf with the RBI setting up a new department to regulate cryptocurrency. As many economies are figuring out what to do with crypto, each decision or formal step in any direction exerts a massive influence on crypto prices. The future of investors’ money is at stake here and any changes in government stances can spook traders enough to throw your current cryptocurrency market analysis out the window.
· News and how it is portrayed: The media has more power than most analysts realize. They are the reel that shapes up investor moods and emotions. Take India, for example – January witnessed incessant media discussions on whether the Indian government will ban crypto trade altogether in the country. The fear in the air was palpable for the estimated 10 crore crypto investors from the country and the jittery movements in the market proved the level of influence these emotions can exert on trade numbers.
· Influencers: Elon Musk and his over-50-million Twitter followers are the perfect examples for showcasing the impact of individual influencers on crypto market analysis. The creation of Dogecoin and its ride to fame with a 20% boost in value just two hours after its arrival on the scene can be attributed to a single three-word Tweet from Musk – “One Word: Doge”. This is the power of influencers – individuals who can leverage the collective might of their online following to generate market movements out of nothing. And no cryptocurrency analysis can predict their involvement and impact on the scene.
Making the right investment decisions is about more than just referring to a crypto analysis website and following market tips. Stock market investment is like a game of chess and the volatility of crypto makes it all the more exciting. So, in order to hone your skills, you must learn how to analyze market trends and make the right judgment calls to maximize your gains. And while there is no clear-cut path that you can follow, there certainly are ways that can help you garner some sense from market movements. Here are 7 ways that you can adopt to give your cryptocurrency analysis the keen edge it needs to succeed:
Keep Up With Current Trends: There is no shortcut to preparation when it comes to crypto trading and being up-to-date on global market trends is a must-do for any investor looking into cryptocurrency analysis before investing. Many websites offer minute-to-minute updates on the world of crypto. Use the insights they provide to identify trends and make smart investment decisions.
Following Leaders: If you are new to the world of crypto market analysis, chances are that you will find this form of trading to be extremely overwhelming. One good way to cut through the clutter of investment insights and data is by following market leaders. Seasoned investors have been in this game for a long and are well versed in the comings and goings of the market. Following in their footsteps can help you learn the ropes as well.
Diversification: Volatility is the only constant in crypto and hence, the only way to shock-proof your portfolio against erratic market movements is diversification. Sticking to just the market leaders like Bitcoin and Ether may not be the best idea. Explore other coins as well to spread your investment across a wide range of avenues.
Pricing influencers: Identifying and monitoring specific factors that influence crypto prices is a healthy investment practice. Whether it is an individual influencer like Elon Musk or an upcoming institutional buy-in – you need to keep an eye on all the factors that have proven to impact the price of the coin you are looking to invest into.
Research: Getting into the background of the tokens you are looking to buy will give you much insight into how the stock will behave when market forces push it in different directions. Knowing the intrinsic value of your holding can help you make decisions about whether to hold the stock in the long term or to simply offload it at the next available opportunity.
Charts: Exploring market charts and graphs can help spot patterns and breakpoints faster. Simple forces such as support and resistance levels can influence market trends greatly. Be sure to learn about crypto technical analysis before you begin trading – it will help you spot patterns that you may not even find out about through trading tips
Volatility: The one constant in the world of crypto changes, and here these can be pretty extreme! An overnight fall of 70-80% value is as much a possibility as hitting an all-time high. Panicking over day-to-day market changes will only trouble your financial health. Stay away from impulsive decisions that are driven by market panic rather than sound research.
One may speculate on the predicted highs and lows of cryptocurrency prices but the reality is that this investing space is new and extremely volatile. The market needs more time to mature and find its ground. When everything from an individual’s Tweets to a huge institutional investment influx holds the power to influence crypto prices, you know that your journey as an investor will be a wild ride. There is no clearly marked path that you can walk on to ensure the safety and growth of your funds. In-depth cryptocurrency market analysis, background research, and careful experimentation are the only ways in which you can find your ground. Use every tool available at your disposal and make smaller bets to reap higher rewards – That is the mantra to follow in crypto trading. All the best for your investment plans!