Crypto Investing
22 Nov 2021

Three Types of Cryptocurrency Market Analysis

Deepan Datta

OK, so you have understood what cryptocurrencies are, how they work, what impacts their prices, and which approach is best for you- investing or trading. 

And, finally, you decided to start investing in cryptocurrencies. From here, your primary task comes up, analysing cryptocurrencies and the market to choose the right coin that has enormous growth potential. 

But, how will you do that? Confused? Don’t worry- let’s discuss it in detail in this guide. 

3 Types of Cryptocurrency Market Analysis 

There are three ways to analyse cryptocurrencies and develop investment strategies and ideas to invest in cryptocurrencies. These includes:

  • Cryptocurrency Fundamental Analysis
  • Cryptocurrency Technical Analysis
  • Cryptocurrency Sentimental Analysis

There is always a debate on which analysis type is the best one and yields better results in the investing world. Although there is no definite answer, it’s all about following the method you are most comfortable with at the end of the day. Here’s a closer look at each type of cryptocurrency analysis method. 

Cryptocurrency Market Analysis

Cryptocurrency Fundamental Analysis

The fundamental analysis is one of the oldest ways of analysing the value of securities, first introduced in 1934. However, the core concepts predominantly focused on valuing stocks and bonds, but investors soon found it useful in analysing the value of other assets, including cryptocurrencies. 

Fundamentally analysing cryptocurrencies is a different ball game compared to stocks and bonds. To fundamentally analyse a cryptocurrency, you need to look at various aspects. It includes project whitepaper, on-chain metrics, tokenomics, competitors, the team behind the cryptocurrency, supply mechanism, cryptocurrency market share & capitalisation, liquidity, volume, etc. 

More than number crunching, you need to assess how the cryptocurrency will be helpful to human civilisation, the sectors it will impact, and the value it will create in the long term.

Cryptocurrency Technical Analysis 

Technical analysis is the art of analysing the price trends and attempting to predict the near-term price movement. Generally, in technical analysis, less attention is given to the fundamentals of the underlying cryptocurrency. 

A technical analyst primarily relies on candlestick charts of multiple timeframes, volume, support and resistance levels, and other indicators like MACD, RSI, Fibonacci Retracement, Bollinger Band to identify patterns that indicate future price movements.

Technical analysis of price trends is a proven science and based on the following assumptions:

Price discounts everything: The markets are very efficient in pricing securities, and all the developments are instantly factored into the cryptocurrency price. It always reflects the actual value of cryptocurrency based on the market conditions.

History repeats itself: The market and investor psychology causes the market to repeat its movement.

Prices always follow a trend: Once the trend is established, the future price tends to follow the trend, which makes technical analysis effective in determining the future price movement.

Cryptocurrency Sentimental Analysis 

The sentimental analysis is about measuring the sentiment of investors in the market. In other words, the study of the two most powerful human emotions in the market- Fear and Greed. 

Fear and Greed result in unpredictability, volatility and irrational behaviour in the crypto market. For example, the 2018 crypto market crash happened due to the extreme greed prevailing in the market as Bitcoin and other cryptocurrencies were trading at unsustainable levels. Such phases are marked by extreme euphoria around the asset class and anxiety, keeping investors on edge. 

Similarly, the phase of extreme fear is marked by panic, discouragement and dismay around the asset class. 

How to do sentiment analysis of the cryptocurrency market?

One of the best ways to study sentimental analysis is to look at the trade volumes. If the price of cryptocurrency is rising on declining trade volume, it is in overbought condition and may experience a sell-off in the near term. On the other hand, if a falling stock reverses its trend on high trade volume, it indicates the trend has changed from bearish to bullish. 

Also, you can check the dominance level of Bitcoin. A decreasing dominance level of Bitcoin indicates, investors have increased their investments in alt-coins. It means an increased level of euphoria in the market, therefore, suggesting you be cautious with your crypto investments. 

Similarly, a higher dominance level in Bitcoin indicates fear, and investors are investing in a safer and proven option in the crypto market. 

Do look for emerging trends in the market.

Wrapping Up… 

The cryptocurrency market has exploded in the last few years, with over 11,000 cryptocurrencies trading in the market. 

As an investor in the cryptocurrency market, you should be able to analyse cryptocurrencies using any of the three types of analysis discussed above. In failure to do so, there are higher chances; you will incur a loss in your investments. 

Common FAQs:

What is the cryptocurrency market cap? 

The cryptocurrency market cap indicates the total market capitalisation of the cryptocurrency. It is calculated by multiplying the per-unit value of crypto and total outstanding coins in the market. 

How to watch the cryptocurrency market?

Through CoinSwitch Kuber App’s market window, you can keep track of the prices of different cryptocurrencies and trading activity levels. 

Alternatively, you can use coinmarketcap.com for information related to cryptocurrencies and the cryptocurrency market. 

Download the CoinSwitch Kuber App and start your investing journey starting at ₹100.

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Deepan Datta

Content Writer

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