Fundamental Analysis by WhiteBIT Expert: How to Predict Cryptocurrency Price – StartupGuys.net
For most modern people, it is obvious that cryptocurrency is becoming more and more popular. Since the beginning of 2020, the total capitalization of the cryptocurrency market has increased almost tenfold and according to forecasts it will continue to do so. It attracts many young people who want to get into business.
At the same time, the overwhelming majority of beginners admit that they need help understanding the cryptocurrency market. A responsible approach and the ability to analyze the market will help you learn to predict cryptocurrency price changes and profit from them.
How to predict cryptocurrency prices?
For a long time, the world of finance has identified three main types of market analysis:
- Technical analysis is the process of studying the trend of an asset based on indicators (such as historical price movements, price patterns, and charts). A trader’s goal is to understand the psychology of market behavior, find similar situations in the past to form a forecast for the future, and understand what times are perfect to enter/exit a position on a asset.
- Fundamental analysis evaluates all aspects of the market, including domestic and global factors and economic and political conditions.
- Quantitative analysis is used with the above two types of analysis and neglects historical market performance. Quantitative research uses calculations of financial ratios (earnings per share (EPS) and discounted cash flow (DCF).
Fundamental analysis will benefit those who want to understand whether crypto rate will rise or fall, because it considers the conclusions drawn from the forecasts, and not the events of the past, in the form of price charts.
Fundamental analysis can theoretically help make investment decisions because it helps determine value based on a wide range of available information.
What is fundamental analysis?
Fundamental analysis is a method of studying and evaluating the variables that affect the value of an asset.
The essence of the method is to seek information that will allow you to know whether cryptocurrency prices are too high or too low and make your predictions about long-term changes in value. At the same time, most of the necessary data is contained in open sources.
Before choosing a cryptocurrency to buy, traders should collect project data and evaluate the basic idea and financial performance. Analyze the state of the economy, the cryptocurrency market and the management of the cryptocurrency project.
Thus, the fundamental analysis method focuses on external factors and their influence on the behavior of cryptocurrencies under current micro and macroeconomic conditions.
The main difference between fundamental and technical methods is that the former does not consider factors that lie on the surface. In the case of fundamental analysis, a much larger picture with many factors is taken into account. In contrast, technical research focuses on price changes and trading volume history, allowing investors to determine short-term trading prospects.
The mechanics of fundamental analysis
To learn how to predict the trends of a popular cryptocurrency, it is necessary to understand two approaches to fundamental analysis.
These are the so-called top-down and bottom-up approaches. The first approach is much more widely used.
The top-down approach gives priority to macroeconomic, market or national factors: inflation, economy, interest rates and gross domestic product (GDP).
When using a bottom-up approach, attention is paid to microeconomic factors: historical financial results, corporate accounts and balance sheets.
Obviously, the above factors are mainly related to traditional financial sectors. Crypto investors may consider the following factors:
- market capitalization;
- outstanding supply and total supply of assets;
- use case and usefulness of an asset;
- the size of the cryptocurrency community (an important factor for broader cryptocurrency adoption);
- team of leaders and creators of the crypto project;
- total volume of transactions;
- list of assets on major crypto exchanges;
- partnership with reputable organizations;
- current cryptocurrency news;
- state regulation.
At the same time, when using fundamental analysis, it is essential to remember that each indicator will give a partial picture of investing in cryptocurrency. To understand a particular project and the possible changes in its cost, the investor must study it and consider all the factors listed above.
To build the broadest possible picture, it will undoubtedly be useful to study the technical documents of the project and the characteristics of the blockchain, which reveal essential aspects of the processes and technologies that underlie a particular cryptocurrency. .
For example, hash rate is the combined processing power used to mine and process transactions on a blockchain. Bitcoin uses a proof-of-work algorithm based on cryptographic hashing, and low hash rates can lead to loss of mining interest.
The list of factors to consider in fundamental analysis can be supplemented with a few other points. You can also gauge user acceptance rate and mood and degree of media coverage.
One way or another, crypto-related news will allow you to gauge the public perception of cryptocurrency. In addition, studying the information will provide an opportunity to assess a company’s strategy and partnerships, which in the future may affect changes in the price of an asset.
Generally, any vital news about a crypto project can help traders adjust their expectations based on fundamental analysis.
Fundamental analysis should be one of many bases for your trading decisions. The chances of success are much greater for a trader who combines technical and fundamental studies.
After a fundamental analysis, you will get a complete picture of the potential of the project. Having determined the real value of the asset yourself, you can conduct a technical analysis and thus, step by step, develop your own trading strategy.
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