What Bitcoin Traders Should Know About Fundamental Analysis
While there are many different methods for evaluating bitcoin prices, fundamental analysis may be the most complete to know the true value.
Fundamental analysis is an evaluation of economic, financial and other key variables, known as fundamentals, to determine the true value safely. This is different from technical analysis (companion fundamental analysis) because the first more interesting to see is the safe price movements to make further and appropriate decisions.
When evaluating bitcoin values, investors are keen to evaluate key aspects of existing cryptographic base technology, for example, how scaling challenges can affect the value of digital currencies.
However, if digital currency transactions evolve to become more expensive and time-consuming because of the limitations of block size, this may impact on demand, which in turn lowers the price of Bitcoin.
Basic Understanding
While investors use fundamental analysis to evaluate different asset classes, such as equities and fiat currencies, some analysts also argue that by using this approach they can evaluate bitcoins in a complex way.
For example, an investor can evaluate a company's stock by looking at a particular item on the balance sheet, but bitcoin does not generate product revenue or income numbers.
Jacob Eliosoff, manager of the cryptocurrency fund, talks about the situation: "It is difficult to get the right bitcoin valuation of future cash flows", as you can with other assets such as General Motors shares.
As a result, traders interested in doing fundamental analysis on bitcoin have developed a "new set of metrics," according to Charles Hayter, founder and CEO of CryptoCompare.
However, although bitcoin has been described as a new asset class, the same regulation applies to fiat currencies will also apply to cryptocurrency, said Tim Enneking, chairman of Crypto Asset Management. "All economic laws apply - in full - to cryptocurrency," he said.
As a result, he stressed that the starting point for all fundamental analyzes is supply and demand that drive a price.
Request Lock Role
Some variables affect the demand for bitcoin, including user adoption / implementation, transaction activity and trade.
Many of the analysts note the importance of user adoption, which is crucial for long-term survival of cryptocurrency. As for what drives user adoption, analysts say that money can have many uses. At the most basic level, money is a store of value, a medium of exchange and a unit of account.
Beyond this in a smaller scope, bitcoin has never really been used as an account unit, says Enneking.
But bitcoin has managed to provide a significant appeal as a medium of exchange. Hundreds of companies - including eBay and PayPal - have agreed to accept this digital currency that was established in 2009.
In addition, the number of confirmed transactions per day generally has a steady upward trend, according to data from Blockchain. Transactions began to soar in early 2012, rising to more than 7,000 transactions per day in early April 2012 to more than 300,000 per day until now.
Despite this informative data, Eliosoff insists that this is not the best indicator, because of the many transactions in the blockchain "generated by automated systems that do not represent economic activity, especially on scalable chains at a low cost."
Instead, traders must find out for themselves which transactions are actually being made by the sender or received from others.
Enneking concludes, since bitcoin gained considerable adoption and retailers largely did not see an increase in sales through bitcoin, there has been a major shift in the focus of crypto-curency as a medium of exchange and storage of value.
Arthur Hayes, co-founder and CEO of BitMEX bitcoin leveraged trading platform, says similarly, that bitcoin so far is considered a value store that is a key driver of the rise in the price of digital currencies.
The Key Role Of Supply
The bitcoin protocol limits the number of its supply units by 21 million, and 16.3 million bitcoins are already in circulation at this time. Furthermore, the new supply level will also continue to be determined by the bitcoin protocol. This is in stark contrast to the traditional monetary system, where the central bank has the ability to print money whenever they want.
However, there are some who object to changes in bitcoin supply.
Satoshi Nakamoto, the creator of the pseudonymous bitcoin, reputedly holds approximately 1.1 million bitcoins that have not moved at all since it was first mined. And many people in the bitcoin community think they can never, see these coins as "dead bitcoins." Forget it for a moment, it's impossible for us to know how much "bitcoin is dead / silent" in the actual amount, said Enneking.
Therefore for the first few years the bitcoin appears, this digital currency unit has no monetary value wah. And when the price starts to move up, the story where the person holding / storing bitcoin begins to become very common and many things.
Big Show
Analysts also note the important role played by major events / events in determining bitcoin prices. These incidents are sometimes directly related to bitcoin, such as hacking or hacking of large exchange exchanges, or decreasing public drive to solve network-scale dilemmas.
"The events that impact on bitcoin prices are non-bitcoin events like Cyprus and Greece."
Hayes from BitMEX also talked about the importance of macroeconomic events, which emphasized that instability would be a fuel that could normally strengthen alternative assets such as bitcoin.
According to Chris Burniske from ARK Invest. During this period of economic turmoil, bitcoin can act as a "tool of value protection," he said.
Main Considerations
By utilizing fundamental analysis, bitcoin traders can get the true value of cryptocurrency and get a better understanding of whether this is the right time to buy or sell.
However, some analysts also criticize fundamental analysis, relying on too much fundamental analysis, without using technical analysis, could cause traders to buy or sell at less than ideal times, they said.
To manage this risk, bitcoin merchants can combine fundamental analysis with technical analysis. For example, a fundamental analyst might look at some demand indicators, conclude that the bitcoin is underbought, and then utilize technical analysis by reading the charts to find the best entry point.
Alternatively, a trader may use technical analysis to determine that this is a good time to sell, and then utilize a fundamental analysis to confirm this view by looking at the key driver of a request.
Important: This article should not be considered, and is not intended to provide any investment advice. Please do a research thoroughly in your own eyes before deciding to invest in the crypto scope.
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