Crypto Fundamental And Technical Analysis
As part of the generic analysis, everything that can have an effect on the value of an asset is considered, including economic, political, and social factors. It is basically the job of a fundamental trader to identify the reasons why a cryptocurrency is rising or falling, which in turn will cause changes in price.
Calculating the true value of an innovative asset, such as Bitcoin, is more challenging, as economic data, figures, and earnings results are less relevant for analysis than when determining the value of a traditional asset, such as a stock or currency. Because Bitcoin does not produce revenue or earnings numbers, it is difficult to determine a precise valuation.
Supply and demand are always interrelated
There is a limited supply of Bitcoin, which means that a maximum of 21 million coins may be mined. The number of actual units in circulation is significantly lower when accidental loss and deliberate destruction are also considered. Therefore, the rate of new supply is determined by the bitcoin protocol, which contrasts sharply with the current fiat system in which central banks have the power to print whatever they like.
Bitcoin demand is influenced by a number of variables, including adoption, trading and transaction activity, and hash rate. Bitcoin adoption has increased rapidly since the second half of 2020, when eBay and PayPal agreed to accept the cryptocurrency. Similar to the increase in transactions in recent times, market players such as the activity of Bitcoin whales can also be tracked, as can the mempool where unconfirmed transactions are held.”
Technical analysis is used by traders to analyze bitcoin’s price movements for patterns and trends in order to determine future price movement. For evaluating signals and indicators to identify price targets, support and resistance, the same principles apply to currencies and indices.
Potential entry levels
As Bitcoin reaches new all-time highs over $20,000 in December 2020, it has entered uncharted territory. The break through the previous record price printed in 2017 is being accompanied by a very rapid move upward, which means some momentum indicators such as the well-known relative strength index (RSI) and stochastics may become less useful due to their effectiveness in range bound markets. An indicator can remain overbought longer than sellers can remain solvent, according to a legendary economist.
There is no ‘higher price low’ or ‘lower price high’ that would be referred to as either support or resistance or a target beyond current levels when the markets surge in either direction above or below previous record prices. However, traders can make use of retracements and extensions based on the traditional Fibonacci coefficients of 23.6%, 38.2%, and 61.8% in order to determine the most appropriate price levels. Using a Fib extension to identify more upside gives a level based on the 38.2% move between the bottom of March and the high of November. Alternatively, retracements are derived by connecting the lows and highs above current prices in order to calculate levels of support below current prices.