The How’s and Who’s of Crypto Trading
It all started with coins, and paper money to present-day digital banks and online payment gateways. As human civilization evolved, we jumped into more technologically sophisticated and safer payment systems. As technology and banking payments grew, the chances of theft, cyber-attacks, and data derailment grew making way for loopholes in the financial sector and user safety thresholds to be breached with money wiped off from accounts.
Since data, user privacy, and transactions were all sporadically exposed to cyber attacks the element of safety and security with money was missing. With the nascent stages of Bitcoin and a completely new technology that gave the world a chance to make the best use of Blockchain, a safer method was implemented for speedy payments using anonymity and safety as its beacons and flag-bearing features. As Bitcoin as well as tokens are being used now as a store of value, it is important to know the basics of crypto trading fundamentals to help you make the best of your trading journey as a beginner.
The Art of Crypto Trading
Most traders from the stock markets, learning and dipping their hands in blue chip stocks to derivatives and swaps, added crypto to their investment portfolio enjoying the growing fervor of cryptocurrency trading. Today, I would share some of the crypto trading fundamentals to help you learn and strengthen your crypto portfolio.
The process of crypto is similar to conventional trading and mechanism. What differs is the technology and its related dynamics which shape the complete business model. Since trading is a volatile activity and requires deep knowledge about evaluating a certain asset. The cryptocurrency fundamental analysis beholds pivot points like the use case, fame, market trends, and on what technology the asset is functioning.
What is cryptocurrency fundamental analysis?
If you are trying to make an entry into the crypto world and trading, you have to understand and scrape information about the underlying value of an asset to help you determine the Intrinsic Value behind it. The intrinsic value of any blockchain project or its released token used as a medium of exchange is decided by the undertaking and operations being performed at the backend. This acts as a yardstick to decide which assets would work in long run for you and which ones would be kept in your trading wallet for a short period. Using this basic information can leverage your analysis skills and learning aptitude providing you with information about when to enter into a specific trade and when to exit. For an aged coin or token, it is easier to determine the value since we can have more data, trade history, and market analysis for making a fair decision. The end goal of making a cryptocurrency fundamental analysis is whether the security is worth investing in or not. We will deep dive into the intricacies of how you can
trade better by knowing about the crypto asset and what sits behind it and determining which one to keep and sell.
Why We Can’t Rely Only on Fundamental Analysis, ‘Alone’?
Cryptocurrencies are diverse and dynamic and therefore to compare using the conventional fundamental analysis technique can risk your money resulting in a bad investment move while jeopardizing your portfolio at the same time. It is easier to conduct a fundamental analysis for a typical business by studying its balance sheets, earnings, and cash flow conditions but this differs in the case of crypto. Crypto projects are difficult to assess as there are no underlying metrics such as the balance sheet, cash flows, and overall financial health of the project. So, we are left with the selective approach to assess the reliable and reputable project having a fortified financial base.
How to Conduct the Fundamental Analysis for Crypto?
Crypto projects are not easier to be forecasted as it doesn’t have a specific stream of cashflows. In a conventional business model, it is easier to generate a foreboded cash flow than the business would generate. In the case of fundamental analysis for crypto, the historical price points as well as supply and demand curves would work for making a trading and investment decision. Not only this, but a vivid bitcoin fundamental analysis would take into consideration the “Stock to Flow” also known as the S2F model. Although there are no profound tools for fundamental analysis, the S2F model would work best in this case.
How to Evaluate Cryptocurrency with Stock-to-Flow Model?
A stock-to-flow model was designed by an analyst named Plan-B on Twitter to predict the future price of Bitcoin. Stock-to-flow model works by keeping an eye on the current supply of the coin as well as the total coins mined each year. The benefit associated with the stock-to-flow model indicates that the mined coins or assets are halved each year summing up to 50%. Now as more coins would be mined the model demonstrates that by 2024, Bitcoin would face scarcity and would act the same as gold and related valuables resulting in a further hike in price. Although the projected guidelines to hit the price point of $100,000 is not yet possible because the stock-to-flow model is more indicative and can help you out whether investing in the particular crypto would prove beneficial or not. Although the plummeting BTC prices tell a different story at this point.
A Lucid Fundamental Picture
Since there is no rule of thumb in determining a fundamental requirement of a crypto price as most of the projects are in a nascent stage, crunched by miners and hyped by the masses. With a growing cryptocurrency bubble at the forefront, it is difficult to determine real-world applications. Though cryptocurrencies are digital forms of stored wealth the real impact and price fluctuations are in the hands of the miners, developers, and traders. Nonetheless the application of cryptocurrency and the wide use case associated decides whether the crypto is worth investing in or not.
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