One of the crucial things an investor needs to do is to know how to analyze the market. In cryptocurrency, an investor should know the causes of the coins’ prices to rise, fall, or stagnate. No one can accurately predict the market, but with careful and thorough analysis, one can somehow get a reasonably good idea of the most probable scenarios. If you are new to cryptocurrency, no need to worry as this article will help you on how to analyze cryptocurrency market cap.
For traders or investors to recognize market trends and identify areas where they can reliably predict the next thing in the market, they need to learn two things: fundamental analysis and technical analysis. Keep on reading to understand these two terms.
Learning How To Analyze Cryptocurrency Market Cap
Fundamental analysis and technical analysis are two vital things needed to know how to analyze cryptocurrency market cap. Understanding these two enables traders to predict the next big thing in the market.
Fundamental analysis means the study of historical price action. Through this, one can predict future price action. On the other hand, technical analysis is a significant part of the trading based mostly on human psychology.
In this article, we will be focusing on fundamental analysis.
Fundamental Analysis: The Basics
Fundamental analysis is used not only in cryptocurrency but also in other types of trading.
This is an approach commonly used by traders to establish the intrinsic value of assets and businesses. The goal is to determine if an asset is overvalued or undervalues based on the number of both internal and external factors. In fundamental analysis, traders are researching their investments to decide on their future value.
As a trader, you can research an asset with a significant market cap and say that it is highly overvalued. If you make a profit when investments decrease in price, it’s called shorting. You can make a profit when you recognize the potential of a project that is currently undervalued. Some factors, even little changes, can have a significant impact. Always consider the changes that are happening and how the market is going to react.
How To Do Fundamental Analysis In Cryptocurrency
When analyzing an investment, traders need to look for several factors.
- Target Market – there is always a target market for every product. This means one must consider the market size. However, a large market is not always the better option. A large market can already be over-saturated with solutions, thus decreasing the chances of adoption. On the other hand, niche markets could be small but can also be highly receptive to new solutions to a problem.
- Competition – in every industry, there is always competition. This is an essential aspect of every industry. Also, investors can use it to gauge the effectiveness of a particular crypto project. Find out how many competitors there are. The more competitors, the more difficult for a project to gain adoption. Also, compare your preferred project with their competitors. Doing so can give you ideas about their strengths and weaknesses, which can help you predict which can beat others in the long run.
- Team – great teams mean successful products. Find out who the senior managers are, where they are from, and their professional backgrounds. In most cases, a team with skilled members with wealthy experience is a good sign.
- Roadmap – roadmaps show upcoming plans to move the project forward. Check out what these plans are and see what you think. Having big ambitions is good, but that is not the only thing that has to be considered. It also should be feasible and realistic.
- Status – the project’s stability is vital to know. For example, if you and Microsoft launched a cryptocurrency on the same day, most likely, Microsoft will have more traction. There is a big chance that a currency’s value will go up if the company that controls the project is already established and has many users.
- White Paper – this document is more on the technical side but is vital. The white paper has everything one needs to know about how a project works. Learning the nitty-gritty of a project can influence you with your investment decisions. It is ideal to read the white papers before making decisions in crypto investments.
- Development and Releases – knowing the company’s history and background can somehow give you an idea of how a project performed. If its history releases show positive outcomes in the past, then it’s a good sign.
- Partnerships – this can also affect your decision as an investor as partnerships are crucial for assigning value. Ensure that you know and understand the details of the collaboration before passing judgment.
- Real World Use Case – some people get caught in the moment and do not take their time to stop and think. Even if a project has excellent fundamentals, check if it has to use blockchain or its own cryptocurrency. If it doesn’t have any of the two, then that is something to think about.
- Price History and Age – look for a project that has already been established and consistently maintained its value as it could mean that it has longevity.
- Liquidity and Volume – chances are if the cryptocurrency if trades often and has a lot of interest and trading, it means it is high in demand. It’s one of the things to consider when knowing how to analyze cryptocurrency market cap.
- Regulation – Ensure that the project strictly follows laws and regulations to avoid dealing with legal issues. Also, it could have disadvantages on the price in the future.
- Community and Reviews – joining crypto communities and reading reviews will give you insights about a particular project.
Learning how to analyze cryptocurrency market cap is an essential factor in cryptocurrency trading. Understanding how the market works and knowing the basics will certainly help you as a crypto trader on what is going to be your next move. Trading and investing are not just about buying and selling assets, coins, and tokens (in cryptocurrency). Understanding and knowing how to analyze data is vital to be able to make sound and logical decisions. Learn more about cryptocurrency market cap here!