Crypto fundamental analysis involves taking a deep dive into the available information about a financial asset. For instance, look at its use cases, the number of people using it, or the team behind the project.
Crypto-day trading can be a lucrative venture for those willing to put in the time and effort to learn the ins and outs of the market. With the right strategies and tools, traders can take advantage of the volatility of the crypto market to make profits. Look at it this way: crypto prices are not uncommon to fluctuate by double-digit percentages in a day. If you are experienced enough and can pluck a gain of just 1% per day, you will have grown your crypto investment by 365% at the end of the year.
Your goal is to conclude whether the asset is overvalued or undervalued. You can use your insights to inform your trading positions at that stage.
Trading assets as volatile as cryptocurrencies requires some skill. Selecting a strategy, understanding the vast world of trading, and mastering technical and fundamental analysis are practices that come with a learning curve.
Technical analysis is a popular method for predicting price movements in cryptocurrencies like Bitcoin and altcoins. Here are some best practices to consider when using technical analysis on cryptocurrency prices:
- Use multiple timeframes: When analyzing cryptocurrency prices, it’s essential to look at the charts on various timeframes, such as hourly, daily, weekly, and monthly. This approach can help you identify trends and patterns that may not be visible in a single timeframe.
- Focus on critical indicators: Technical analysis relies on moving averages, MACD, RSI, and others to identify trends and predict price movements. Focusing on critical indicators relevant to the specific cryptocurrency you are analyzing is essential.
- Watch for support and resistance levels: Support levels are prices at which buyers enter the market, while resistance levels are prices at which sellers tend to enter. Identifying these levels can help you make more informed trading decisions.
- Look for chart patterns: Technical analysts often look for patterns like head and shoulders, triangles, and double tops and bottoms. These patterns can signal upcoming price movements and help you make informed decisions about buying and selling.
- Keep an eye on market sentiment: Technical analysis can provide valuable insights into market sentiment. However, monitoring other factors like news events and regulatory changes that can impact the cryptocurrency market is essential.
- Use risk management strategies: Like any form of trading, risks are associated with using technical analysis on cryptocurrency prices. It’s essential to use risk management strategies like stop-loss orders and position sizing to protect your investments.
Technical analysis can be an effective tool for analyzing and predicting cryptocurrency prices. However, it’s essential to use a combination of technical analysis, fundamental analysis, and market sentiment to make informed trading decisions. Additionally, it’s necessary to use proper risk management strategies to protect your investments.
Regarding technical analysis, some expertise can be inherited from the legacy financial markets. Many crypto traders use the same technical indicators in Forex, stock, and commodities trading. Tools like RSI, MACD, and Bollinger Bands seek to predict market behavior irrespective of the asset being traded. As such, these technical analysis tools are also top-rated in the cryptocurrency space.
Though the approach is similar to legacy markets in cryptocurrency fundamental analysis, you can’t use tried-and-tested tools to assess crypto assets. To conduct proper FA in cryptocurrencies, we need to understand where they derive value from.
The 5 Crypto Research Tools for Beginner Investors
Whether you’re a beginner or a crypto investor for years, crypto research tools can help you stay ahead of the game. Here are the five best research tools to refine your research before investing in cryptocurrency.
Messari is a crypto data aggregator with helpful tools to analyze charts, allowing you to make better trading decisions. It has a Messari screener that you can use to sort coin information through various customized filters. You can view all the coin metrics in one window with the screener — from price, liquid market cap, coin categories, and trading volume to the sector.
Glassnode is an on-chain data and intelligence platform offering many metrics and insights. You can use Glassnode to unchain market indicators for any coin. The platform also provides data to help you analyze the exchange inflow and exchange outflow for different coins.
LunarCrush is the most reliable social media provider in the crypto community. Social trends can have a significant impact on crypto prices. But keeping up with all the social media inside and outside the crypto ecosystem is nearly impossible — which is why LunarCrush will do it for you.
4. Coin Metrics
Coin Metrics is a provider of crypto financial intelligence, market data, index, network data, and other analysis tools to help you make informed crypto decisions. The platform lets you access over 100 assets and 300+ metrics to analyze almost all charts and identify market trends.
Santiment is another crypto research tool that deserves a close look. Like Glassnode, Santiment provides on-chain and social media data on 1,500+ cryptocurrencies, helping you predict the price movement of any crypto.
The Problem with Crypto Fundamental Analysis
Cryptocurrency networks can only be assessed through a different lens than traditional businesses. The more decentralized offerings like Bitcoin (BTC) are closer to commodities. But traditional FA indicators can only tell us a little, even with the more centralized cryptocurrencies(such as those issued by organizations).
So, we need to turn our attention to different frameworks. The first step in that process is to identify vital metrics. By substantial, we mean ones that can’t easily be gamed. Twitter followers or Telegram/Reddit users could be better metrics, as creating fake accounts or buying engagement on social media is easy.
It’s important to note that no single measure can give us a complete picture of the network we’re assessing. We could look at the number of active addresses on a blockchain and see that it has been sharply increasing. But that doesn’t tell us much by itself. For all we know, that could be a standalone actor transferring money back and forth to themselves with new addresses each time.
Done correctly, fundamental analysis can provide invaluable insights into cryptocurrencies in a way that technical analysis cannot. Being able to separate the market price from the “true” value of a network is an excellent skill to have when trading. Of course, there are things that Technical Analysis can tell us that can’t be predicted with Fundamental Analysis, and that’s why many traders use a combination of both these days.
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