How to Analyze the Crypto Market to Invest Wisely

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You can use cryptocurrencies for many different things. Nowadays, it’s even possible to use them for gaming at casino online Canada sites. However, if you want to be not only a user but also an investor, digital currencies offer you this option. By correctly analyzing the market and making the right decisions, you can also generate income from cryptocurrencies. In this article, we will talk about how beginners can do market analysis.

General Information

The techniques used for crypto market analysis are the same as Forex, stock and asset trading techniques. Cryptocurrencies are also assets after all, and there is no need to use different technical indicators to evaluate them. It is enough to adapt the current indicators to the peculiarities of the crypto market. In this regard, technical analysis tools such as RSI, MACD and Bollinger Bands can also be used for cryptocurrencies. However, these are complex techniques, and it would be more accurate and practical to use the basic indicators, which we will explain below, at least in the beginning.

Failure Analysis (FA)

This analysis is done to understand whether the asset is priced correctly or incorrectly. If you find, for example, that Bitcoin has a lower price than it should be, you will buy it. If the opposite is true, you sell your Bitcoins. Many different factors and candlestick patterns are used for this analysis.

Normally, investors use the financial data of a company its share prices, and many other factors when making a FA for a specific company. For cryptocurrencies, none of these is available. Therefore, the traditional FA approach does not work for crypto assets. However, the purpose is still the same, namely, to understand whether an asset has the value it deserves. And to do this, different indicators can be used.

First of all, you can start by doing an Onchain Analysis. This analysis will allow you to learn about many different indicators such as the number of transactions, transaction value, active blockchain addresses, transaction fees, hash rate and stake amount. Moreover, it is possible to do this easily by using free APIs. For example, CoinBase, Binance Research and Coinmetrics offer this service. You should evaluate the data you will obtain with Onchain Analysis as follows:

  • Number of transactions: This is a good metric to understand how active the blockchain is. By creating charts for certain time periods, you can see if the popularity of the crypto asset is increasing (or decreasing). But remember that you need to focus on individual transaction numbers to get a healthy result. Because even a single user can make dozens of transactions, which can misleadingly increase the total number of transactions.
  • Transaction value: This shows the total value of transactions made within a certain time period. Using this data, you can see the daily, weekly and monthly trading volume of crypto. Likewise, you can tell if the trading volume is growing by creating chart layouts.
  • Active addresses: By counting both senders and receivers of transactions made on the blockchain, you can get a good idea of ​​the number of active users and see how that number changes (increase or decrease).
  • Transaction fees: Blockchains prioritize transfers of people who are ready to pay high transaction fees. If there are drastic differences in the transaction fees and high fees are seen more than low fees, that crypto is in more demand.
  • Hash rates: This is a security measure, and the higher the hash rate, the more secure the crypto is. Cryptos with a high hash rate will be less likely to receive different types of blockchain attacks (for example, a 51% attack). If this ratio is high, it also indicates that the number of miners is high, that is, the crypto is active.
  • Staking amount: The higher the stake, the more interest the crypto gets.

Project Criteria

In addition to these, you can also take a look at other project criteria for FA. The more data you have, the better your analysis will be. In this context, you should first look at the crypto’s whitepaper. Projects with realistic goals, using open-source technology and clearly specifying the order of supply and distribution are safer and more promising. You should also check out the project’s founding team. Pay attention to the backgrounds and expertise of the members: how interested are they in blockchain technology? Are there any cases of fraud they have been involved in in the past?

Each crypto targets a specific use case. For example, a crypto may have identified online gaming payments as its target. In that case, you need to take a look at competitors in the same market: does this new crypto really stand a chance or is it wasted on an already established market? Once again, collecting as much data as possible and performing the FA analysis after that will ensure you get the most consistent results possible.

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About the Author: John Watson

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