When selecting specific cryptos to invest in, professional investors often use technical, fundamental and on-chain analysis:
Technical analysis looks at patterns in market data to identify trends and predict how markets might move in the future. This is often done by using price and volume data. Technical analysis is generally divided into trend, mean reversion, relative strength, volume, and momentum.
Fundamental analysis is a “big picture” approach that examines an asset price based on its intrinsic value by looking at factors like financials, future utility and social community. When you then compare that fundamental value to the current market price, you can see whether the crypto asset is either undervalued or overvalued.
On-chain analysis is an emerging field-specific to cryptocurrencies, where investors look at the public data on the blockchain. Common indicators are miner revenue, hash rate and active addresses. Using such indicators in different forms helps identify how participants are using a blockchain and have been a decent long-term price gauge for bitcoin.
At Moonbit, we seek to combine different analyses to increase the probability of better returns while also implementing risk management practices to deal with market changes.
Why should you care?
Investing based on emotions and gut feelings will likely lead to poor investment performance, but instead using different indicators will give you a rational picture of what cryptocurrencies to buy and sell.