It may seem like an obvious point to make but one still needs to make it – crypto markets are volatile. On one end, we hear stories of people making millions while riding the wave of a crypto upswing. And the very next day, there would be headlines of major dips in the market and of people losing their life’s savings. Crypto market analysis can be a roller coaster-like that. Add to it, there is no centralized body regulating the product and there is no physical product being shared either. Understanding what drives the value of this stock is therefore integral for any form of cryptocurrency market analysis. If your wish is to make informed investment decisions, this article is for you.
Cryptocurrency is completely decentralized. And since there is no central agency or government backing the value of these assets, their price is completely at the mercy of market forces and crypto information circulating amidst investors. On a basic level, one can assume cryptocurrency to be deriving its value from the below-mentioned sources:
· Supply and demand interplay
· Cost of mining
· Availability of coins on exchange platforms
· Competition amongst different coins for market share
· Governance and management of the coin in question
· Regulations, as and when they arrive from different governments
· News and influencer behavior
The biggest and most influential factor to be considered here is supply and demand. Demand increases as a project gain recognition and as its utility increases. Take the example of the year 2021. As institutional investors began showing interest in Bitcoin, its market price increased manifold as the demand for this coin far outperformed the rate at which the coin is mined. Defi projects have had a similar impact on Ethereum. Ether is required to perform transactions on blockchain irrespective of what crypto asset you are trading in. Defi projects, therefore, create a major increase in demand for Ether as more and more transactions are needed to be carried out on the blockchain.
Regardless of how well versed you are with the comings and goings of stock trading, there isn’t anything that can be done to shield yourself from the mighty impact of cryptocurrency price swings. Bitcoin, one of the most popular stocks in this world of investment, records a standard measure of daily fluctuations at a whopping 64% annualized. That being said, it isn’t so that the crypto investment game is purely dependent on chance. Cryptocurrency analysis and evaluation tools can go a long way in providing your portfolio with the shock-absorbers it needs to survive and yield sizeable returns. Here are three basic ways in which you can carry out cryptocurrency market analysis to make informed investment decisions:
Cryptocurrency technical analysis works on the assumption that markets will always behave in accordance with certain patterns and that once a trend establishes itself, it will sway the market in predictable directions, at least for some time. And this form of analysis hence uses different mathematical indicators to generate actionable intel as to the direction future market trends may take, allowing investors to make informed decisions and reap subsequent benefits.
Different investors prefer using different technical indicators to make cryptocurrency market live analysis. This choice solely depends on the preference and comfort of the investor with different technical analysis tools. Here are a few options that one might consider for technical analysis of crypto information:
· Candlestick charts: These charts display four different price levels for each interval rather than reducing the data to being represented by one point for every interval. This allows for a detailed picture to emerge in terms of how investors are buying and selling their stock during a pre-set period of time.
· Support and Resistance: These levels indicate the points where the prices of cryptocurrency will bottom or peak. Once identified, these levels can be used to create a trading strategy as they indicate the emergence of new trends as well as price reversal points.
· Average Directional Index: This indicator helps investors in understanding the trend of a market trend as it is playing out in the market.
· Moving Averages: As opposed to Directional Indexes, Moving Averages help determine the direction of a trend and therefore, help investors in forming informed trading strategies using cryptocurrency market analysis.
· Trend Lines: These indicate potential trends as they may emerge in cryptocurrency market live tracking. In simple terms, they may indicate multiple high and low points. Seasoned analysts may use these lines to evaluate more complex trade patterns.
Fundamental analysis of cryptocurrency revolves around determining the real value of the asset in question. The public information about a particular asset helps in determining how financially rewarding it will be to own. Everything including economic predictions, government data, financial inputs, and even influencer preferences can shape the fundamental insights about a particular asset.
Fundamental cryptocurrency analysis takes a deep dive into the background information about the financial asset you are looking to invest in. The central idea for this form of market analysis is that the asset in question will eventually gravitate towards its fair market value over time. In case after fundamentally analyzing an asset, the value determined is different from its current market value, herein lies an investment opportunity that no crypto trader should miss out on.
Eventually, fundamental analysis of crypto information helps determine whether an asset is currently undervalued or overvalued in the market. This valuation presents different trading scenarios that will, in the short as well as long term, yield benefits for investors in varying degrees. Information garnered through this form of analysis can be used to fix entry and exit points for different trade strategies as well as determine how one can apply stop-losses while trading in a particular asset.
Traditionally, fundamental analysis looks into various factors while determining the intrinsic value of an asset. Indicators include a price-to-book ratio (value as pegged by investors vis-à-vis its book value, earnings-per-unit as well as a detailed competitive analysis to determine whether or not the stock in question will stand its ground in the near future in the competitive environment it is expected to perform in.
#3: On-Chain Analysis
Now we are entering into cutting-edge cryptocurrency market analysis, looking at non-traditional markers to determine the value of the coin you are looking to invest into. Crypto happens to be the only asset class wherein all trading activity and transaction information can be extracted from the public ledger for analysis and interpretation. This form of trading research is called on-chain analysis, referring to the act of gaining actionable insights into the overall sentiments and behavior of investors in a given network.
The on-chain analysis is an emerging field and hence, new indicators are formulated every day, giving insights into different aspects of crypto investment in relation to a particular token. One of the most famous on-chain analysis metrics was the Coins-Days-Destroyed – a metric introduced in 2011 in relation to the Bitcoin trade to track transaction activity. Similarly, NVT (Network-Value-to-Transaction) Ratio tracks market cap and actual usage in terms of network transactions. There are many service providers like Coin Metrics, Glassnode, IntoThe Block and so on, solely dedicated to on-chain data analysis and offer valuable investment intel on the web. One can use the insights they offer to conduct cryptocurrency analysis before planning trades.
Any kind of investment decision, be it crypto or otherwise, should always be backed with a thorough assessment of current market conditions and a deep understanding of the asset in question. Cryptocurrency market analysis tools like fundamental, technical and on-chain evaluation help investors in making sound financial decisions in regards to their trades. Taking your risk preference into account is another factor that must be considered. You do not want to expose your capital any more than you can afford. Cryptocurrency is a volatile market and no trading tip/data insight can ever fully guarantee the safety of your money. But these analytics can ensure that you are not blindly riding one wave after another or else, it would be just a matter of time before you crash and drown.
So, make the most of these three crypto market analysis techniques and keep a withered eye on the market to spot any changes/trends that are about to happen. Predictability of market movements will be your best friend on your journey to becoming a successful crypto investor. All the best!