Cryptocurrency Market Analysis Part I

Just like any other financial market, as an investor/trader, it is crucial to perform a proper financial analysis. Although, market analysis can get boring, sometimes resulting in discouragement and a total retreat from investing in the cryptocurrency market. However, it is of utmost importance to conduct a market analysis.

Over the next couple of weeks, we will be taking you through a deep dive into various analysis methods.  But before we start, let’s differentiate how the cryptocurrency markets vary from other major financial markets(that is the stock market and the currency market) and what similarities they share.

In the stock market, company’s revenues, earnings, future growth, return on equity, profit margins, and other public data are analysed to determine its value and future growth potential. In the currency market, countries economics (such as GDP and Inflation) and its currency behaviours are analysed. Whereas, in the cryptocurrency market, the project’s white paper, its token economics, the team behind the project, and much more are analysed (don’t worry, just stick with us, we will talk about all of them).

One of the most important similarities in most financial markets, is how investors/traders perceive a financial asset (such as Ethereum) and how they react to price changes in the market (What does that even mean? Find out below).

How Financial Markets are Analysed

Now, the fun part, There are three major ways the cryptocurrency market can be analysed. In fact, not just the cryptocurrency market, but also most other major financial markets. They are:

  • Fundamental analysis
  • Technical analysis
  • Sentimental analysis

We will discuss all of them briefly in this article and dive deeper into them over the next couple of weeks.

Fundamental Analysis

So what is fundamental analysis? It is a method of evaluating an asset in an attempt to assess its intrinsic value (the perceived or calculated value of a company), by examining related economic, financial, and other qualitative and quantitative factors.

It must be said (as stated above) that fundamental analysis in the crypto landscape differs from that in the stock market (as well as other financial markets). There are no earnings reports to study, no profit per share to calculate. However,  there is a way to get a handle on whether or not the project is suited for a long-term investment. Here are a couple of sources this information.

  1. Whitepaper:  White papers are well-constructed proposals outlining the purpose and mechanics of the project. This constitutes the main source of evaluation of the coin as well as what they seek to achieve with the development of the coin. You should read a company’s white paper before investing. The downside is that white papers might be heavily worded with technical jargon and concepts which may be difficult for the average Joe to grasp. One way is to join their community and ask for a simpler explanation for some of the technical lingo. (for example, the Ethereum white paper)
  2. Project social channel or blog: This provides the official and main communication channel of the core development team. Join the channel and see the development team’s interaction with the community. Ask questions to get more information about the project. You should also follow the updates from the developers on their official blog. 

Technical Analysis

Technical analysis is a method of evaluating an asset by analysing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure an asset’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns, others use technical indicators and oscillators, some also use the combination of the two. Technical analysis is the most common method used in cryptocurrency trading today.

Sentiment Analysis

Market sentiment is the overall attitude of investors toward a particular asset or financial market. Market sentiment is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the asset traded in that market. Sentiment analysis can be achieved from fundamental analysis (for example, the reaction of people on social media channels ) or technical analysis (Through chart patterns, candlestick pattern and so on). We will dive deep into the sentiment analysis on it’s dedicated article.

Based on the above we have been able to briefly touch the different methods used in cryptocurrency market analysis. We hope this gives a comfortable background to flesh out your understanding on how to analyse the cryptocurrency market. Our next article in this series will dive deeper into Fundamental analysis.


David Omomia
David Omomia is an analyst at Quidax. He is passionate about blockchain's role in the evolution of financial systems.