How To Analyze A Cryptocurrency Using Fundamental Analysis

If a project has a low trading volume, particularly a mid- or large-cap project, it may have been abandoned, lack a real-world use case, or there are other serious concerns about the project. Low trading volume can be low market cap crypto a red flag, as it is a measure of how easily a crypto asset can be bought or sold. Usually, the higher the volume of cryptocurrency transactions, the more liquid the market will be for that particular coin or token.

It mainly focuses on historical market data, such as trading volume and past price trends, rather than what a currency or project actually does. Analysis of this data is used to build a clearer picture of market sentiment by identifying patterns of repeated behavior. This can help you make calculated predictions about when the market will be bearish or bullish. These predictions should theoretically allow you to buy when the market price is low and sell when it is high to make a profit.

And for those who want to own bitcoin but can’t make a $60k+ investment, they can buy and sell a fraction of each crypto. Once you’re set up on a platform, it’s time to choose what you want to invest in. The same market condition that deters investors from buying and holding is chaos that creates opportunities for day traders to make a profit. Volatility and liquidity are two elements that the day trader needs to actively participate in the crypto market.

A technical analysis uses what has already happened to try to predict what will happen in the future, but nothing is certain. If done correctly, fundamental analysis can provide valuable insights into cryptocurrencies in a way that technical analysis cannot. Being able to separate the market price from the “real” value of a network is an excellent skill to have when trading. Of course, there are things TA can tell us that can’t be predicted with AF.

Keep in mind that, like trading volume, circulating supply and total supply can sometimes be unreliable statistics. This is because many coins and tokens are considered “in circulation” even if they are lost or stolen. In addition, in cases where the total supply is higher, a large inflow into the circulating supply can quickly lower the price. As far as we know, most financial risk models do not include idiosyncratic crypto risk as a ‘factor’. If crypto primarily has unique risks and returns specific to the crypto market, then any portfolio with allocations to crypto will have a residual or unexplained risk, according to these factor risk models.