Learning the basics of cryptocurrency trading and investing is probably one of the most valuable things you can do.
Three Arrows CEO Su Zhu said the years ahead will be difficult if you refuse to learn crypto.
Therefore, now is the time for us to learn crypto analysis together.
Now more and more traders and investors are applying analytical methods to this sector.
Investment reports using fundamental analysis have been published by various multinational financial companies such as Goldman Sachs, JP Morgan and Morgan Stanley.
The report also expressed bullishness on the industry.
While many investors choose to ‘hold’ their coins, Multicoin Capital co-founder Tushar Jain said crypto was the most inefficient market he had ever seen.
Even so, he sees that there are many opportunities that investors can seize in the future.
With that in mind, let’s explore the basics of the three most popular types of cryptocurrency analysis, namely fundamental, technical, and on-chain analysis.
Fundamental Analysis
Fundamental analysis is a review of available information about cryptocurrencies that combines quantitative and qualitative financial metrics.
Ultimately, the goal of this analysis is to determine the intrinsic price of a cryptocurrency.
When you then compare the fundamental value with the current market price, you can see whether the crypto asset is undervalued or overvalued.
Undervalued assets can represent buying opportunities, while overvalued assets can signal it’s time to take profits.
When we apply fundamental analysis, we will get more information.
For example, Dogecoin, we can see that this company lacks fundamental value propositions such as a roadmap, development team, and even a whitepaper.
However, it has a market capitalization worth ten of billions, hundreds of millions in 24-hour volume, and is one of the most well-known cryptocurrencies.
It has even proven to be a use case used by various famous people and accepted as a payment method.
This makes Dogecoin have intrinsic value.
While fundamental analysis might suggest that Dogecoin at $1 would be overvalued, at 5 cents, Dogecoin could be a good buy.
The following are important aspects for carrying out fundamental analysis:
- Market capitalization
- Volume
- Tokenomics
- Total value locked
- Roadmap
- Team members
- Community size and involvement
- Rate of network growth
- Adoption rate
- Whitepaper
- Use cases
Technical Analysis
Technical crypto analysis looks at past price movements in an attempt to determine which direction the market will move next.
Does it go up? Down? sideways? This analysis refers to a number of indicators and statistical patterns to determine the probability of each scenario.
Although traders use statistical metrics, they rely heavily on visual charts to help identify key signals, such as support and resistance.
Ultimately, technical analysis is used to find buy and sell signals.
It is important to note, traders who use technical analysis never expect to always be right.
In fact, a trader who is only 55% correct when using this analysis can still make extraordinary profits.
To manage risk when the market moves against their indicators’ predictions, they use risk management practices, investing only a portion that they could bear to lose of their holdings on a single trade.
Following are the important aspects of technical analysis:
- Moving average convergence divergence (MACD)
- Relative Strength Index (RSI)
- Bitcoin price Simple Moving average (SMA)
- Moving Average (50,200) Crossover
- On-balance volume (OBV)
On-chain Crypto Analysis
On-chain analysis, or blockchain analytics, involves examining blockchain data such as transactions, trades, and wallet address ownership to understand the actions of market participants on each blockchain in real time.
For investors or traders, you can gain insight into who is holding or trading a particular cryptocurrency, how market participants position their portfolios, and how token holders react to market events.
This unique insight into market movements that is not available in traditional financial markets offers investors a new way to conduct research and due diligence.
Often, raw blockchain data is not easily accessible to laypeople and requires further contextualization and parsing to make this data useful.
Insightful on-chain indicators include:
- Number of active addresses
- Number of transactions
- Volume in chain
- Hash rate
- Miner revenue
- Total value locked (TVL)
- Market value to realized value (MVRV)
- Network value to transactions (NVT)
- Realization limit