How To Analyze Crypto Currency Aka Crypto Analysis
When it comes to fundamental analysis of cryptocurrencies, while the approach is similar to traditional markets, you can not really use proven tools to value crypto assets. To perform a proper FA in cryptocurrencies, we need to understand where they get their value from.
Done correctly, fundamental analysis can provide invaluable insight into cryptocurrencies in a way that technical analysis cannot. The ability to distinguish the market price from the “true” value of a network is an excellent skill for trading. Of course, there are things that TA can tell us that FA cannot predict. That’s why many traders today use a combination of both.
Trading assets as volatile as cryptocurrencies requires some skill. Choosing a strategy, understanding the wide world of trading, and mastering technical and fundamental analysis are practices that come with a learning curve.
Cryptocurrency networks can not really be evaluated with the same perspective as traditional businesses. If anything, the more decentralized offerings like Bitcoin (BTC) are more comparable to commodities. But even with the more centralized cryptocurrencies (e.g., those issued by organizations), traditional FA indicators can not tell us much.
For cryptocurrencies with declining issuance plans, this is an interesting metric to explore. The main Proof of Work (PoW) blockchains offer a block reward. For some, it is composed of a block subsidy and transaction fees. The block subsidy decreases periodically (on events such as Bitcoin being cut in half).
The hash rate is often used in proof of work cryptocurrencies as a measure of the health of the network. The higher the hash rate, the more difficult it is to successfully perform a 51% attack. However, an increase over time may indicate a growing interest in mining, likely due to low overhead costs and higher profits. Conversely, a decrease in the hash rate indicates that miners are going offline (“miner capitulation”) because it is no longer profitable for them to secure the network.
Analysis of the cryptocurrency Bitcoin
Why should beginners start with Bitcoin? If you are new to the world of blockchain and cryptocurrencies, it can be overwhelming to filter out reliable cryptocurrencies from unreliable ones. Several cryptocurrencies popularly referred to as “meme coins,” such as Dogecoin, Shiba Inu, and Poocoin, have popped up recently and cost newcomers a large chunk of their investments. On the other hand, Bitcoin is a much safer (if not the safest) cryptocurrency to invest in. Here are some more reasons to trust Bitcoin:
1. Decentralized cryptocurrency
2. Deflationary token
3. Publicly available whitepaper
4. Proof of Work (PoW) mechanism
5. Crystal clear tokenomics
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