The Art of Cryptocurrency Analysis: Technical, Fundamental, and On-Chain Insights for Smart Trading and Investing

Having a holistic undertanding of the fundamentals of cryptocurrency, trading and investing is the most valuable asset and knowledge you can have in this century.The CEO of one of the largest crypto hedge funds, affirms, “If you don't understand crypto and refuse to learn, it's gonna be a tough century for you.”

over the years, more and more traders and investors apply different methods of analysis to the space.

While many investors choose to ‘hodl’ their coins, the co-founder of Multicoin Capital, Tushar Jain, recognises that, “The crypto markets are the least efficient markets I’ve ever seen in my life, and that means active management has an opportunity to shine.”

Considering all these factors, let’s take a look at the three most popular types of cryptocurrency analysis; technical, fundamental and on-chain analysis. Let’s start with the technical.

Technical analysis for cryptocurrency

Technical analysis examines past price movements to predict which direction the market will go next. Is it rising or falling? Sideways? To estimate the likelihood of each scenario, technical analysis employs a number of statistical indications and patterns. While traders employ statistical measurements, they also primarily rely on visual charts to spot critical indications such as support and resistance. In the end, technical analysis is utilized to identify buy and sell signals.

It is crucial to realize that traders who use technical analysis do not expect to be correct all of the time. In fact, even if a trader is only correct 55% of the time, he or she might still be extremely profitable. They utilize risk management strategies such as establishing auto sells and investing only a fraction of their holdings on a single trade to control risks for instances when the market moves opposite to what their indicators projected.

Consider the bitcoin chart above, for late July 2021. The line is the Relative Strength Index (RSI), an indicator that determines whether a market is overbought or oversold. Cointree's Technical Trading Analysts noticed that it was nearing oversold area in our market updates, and we may see some profit taking.

Following that, our researcher noticed that the 50-day moving average was rising, confirming what appeared to be a positive trend. In summary, our analysts used technical trading methods to forecast that, while there may be a brief decline in price, the market will most likely continue to rise. That's exactly what happened, as you may recall.

• Popular tools of fundamental analysis:
• Moving average convergence divergence (MACD)
• Relative Strength Index (RSI)
• Bitcoin price Simple Moving average (SMA)
• Moving Average (50,200) Crossover On-balance volume (OBV)

2. Fundamental analysis for cryptocurrency

An extensive investigation of all the data on a coin is conducted throughout the fundamental analysis process. It employs a combination of quantitative and qualitative financial metrics. The ultimate goal of fundamental analysis is to ascertain the intrinsic value of a coin.

The intrinsic value can then be used to determine if the crypto asset is overvalued or undervalued by comparing it to the current market price. An asset that is undervalued may give a buying opportunity, whereas an item that is overvalued may indicate that it is time to take profits.

Is there any intrinsic value in a meme coin like Dogecoin? Mark Cuban, a technology entrepreneur, disagrees, saying, "That's not to say [dogecoin] has any intrinsic value." No, it doesn't."

However, when we use fundamental analysis techniques, we become more educated. So, what exactly is Dogecoin? To begin with, it lacks numerous essential value propositions, such as a roadmap, developer staff, and even a whitepaper.

Nonetheless, it has a market cap in the tens of billions of dollars, hundreds of millions in 24-hour turnover, and is one of the most well-known cryptocurrencies. It even proved useful when Mark Cuban's NBA franchise, the Dallas Mavericks, accepted it as a form of payment for tickets. It clearly has intrinsic value.

While fundamental analysis suggests that Dogecoin is overvalued at $1, it could be a wonderful buy at 5 cents.

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Key information to inform fundamental analysis:

• Community size and engagement Rate of network growth
• Whitepaper Use case
• Rate of adoption
• Market cap
• Volume
• Tokenomics
• Total value locked
• Roadmap
• Team members

3. On-chain analysis for cryptocurrency

On-chain analysis examines the blockchain's open data. The cryptocurrency industry is the only one where it is a developing field, and traders use it to more accurately forecast market movements and assess market sentiment. Finally, traders employ on-chain analysis to determine the factors driving the purchasing and selling of various market participants, such as miners selling to cover expenses or hedge funds taking profits.

With on-chain analysis, traders examine how various market players, including institutional investors, exchanges, miners, and retail dealers, are acting. They make use of a variety of indications, including as transaction volume, wallet balances, and coin dormancy.

The percentage of miners and major holders of bitcoins has dramatically fallen, as shown in the graphic above from Glassnode, while the number of coins held by regular investors has significantly climbed. This is a crucial indicator since it demonstrates how the network's decentralization is growing over time.

Additionally, traders can use the aforementioned chart to determine how much of an impact various market participants have on the price. According to Rafael Schultzre-Kraft, co-founder and CTO of GlassNode, "We have noticed a huge increase of bitcoin whales (and their supply) since 2020. This indicates that institutional investors, funds, family offices, and other HNWIs have been stepping into the market.

combining all three analytical techniques for profitable cryptocurrency trading considerably though each of these analytical techniques is useful on their own, when combined, they are considerably more effective. A single metric by itself might not be helpful. But by combining all of your analysis techniques, you may create a captivating image of the market, much like a thousand tiny brush strokes.

Naturally, you don't have to have all three in line to make a transaction. You can enter and exit positions as the market shifts if you keep up your risk management procedures and allocate your resources wisely.

The successful cryptocurrency hedge fund Three Arrows Capital described in the introduction did not always have billionaire investors, as we discussed in our bitcoin success tales. They used their own resources to start their fund at a kitchen table in their apartment. Presently, there are several Lamborghinis parked in front of each trade office.

Since they had been trading profitably for almost ten years, it is evident that their success was not the result of luck but rather rigorous research and shrewd trading. They have greatly outperformed the hodlers, which is telling.