We all know that investing in cryptocurrency can be scary for those new to the market.
This is especially true for such a nascent asset class that is more volatile than anything else they have previously considered. With that being said, the movement of crypto prices are usually dependent on certain events or speculation of a particular event occurring.
Hence, there are a number of metrics and indicators that we can use in order to inform our opinion of potential price movement. When combined, these factors are able to provide the investor with an idea of attractive coins.
In this article we’ll go over what these market factors are and what they could mean for your investment.
1. Exchange Listings
Exchanges are the centralised marketplaces where a coin is being actively traded.
This is obviously important, because if there’s nowhere to trade a coin then there is no buying or selling pressure. Generally speaking, it is much better when a coin is active in a range of markets. Additional markets add liquidity which is an essential requirement for mass adoption.
Moreover, it is also pretty obvious that a coin that is only traded on one exchange is a highly risky investment. This means that if the coin were to be delisted from said exchange for any reason, then the market would freeze and the coin would stagnate.
Bitcoin for example, has an excellent rating here, because it’s traded on almost every exchange.
2. Volume Ratio
This factor is in regards to the amount of coins being actively traded on the above mentioned markets. A coin with a high volume of trades means that many investors are actively interested in this asset. This can be a sign that a potential price swing may be imminent in either direction.
While this can mean a sizeable return, it can also mean big losses if you purchase at the end of an upswing. New investors should tread carefully here.
However, on the flip side, an asset that has no volume will be difficult to trade. This is because any order of a significant amount of coins is likely to impact the price. "Market depth" with healthy buy and sell orders either side is essential.
By performing an analysis of market information, we can see that OmiseGo for example, has a decent trading volume. You can see this in the below:
Image source: coinmarketcap.comThese are the top 10 markets for OmiseGo as well as the trading volume on each market. OmiseGo has attracted a lot of interest lately especially in the Asian markets.
3. Market Capitalisation
Market Capitalisation or "Market Cap" is representative of the value of all of the coins for a particular project that are currently being traded on the market.
When there is more demand for a particular coin, this is likely to increase the price and hence the coin's market cap. For the most upside potential, investors are looking for coins that have a relatively small market cap but have exiciting projects that they are working on.
However, a large market cap for a coin that is still at an attractive price could signify it is undervalued. If we take a look at EOS, we can see that their score in this area is quite good, while the initial investment required is still relatively low compared to others.
4. 24 Hour Price Change
Analyzing past chart material is a great way to estimate in which direction an asset is moving. This is exactly what "technical analysts" do and what informs there order levels. They are of the view that price is in itself an indicator of future price.
Technical analysis is also time horizon agnostic. This essentially means that charts can tell a story over different time frames. They can be analysed from the daily level all the way up to the weekly and monthly level. The trends and indicators should tell a similar story.
When a coin has moved by a large percentage over the past 24 hours, it could be indicative of further price action. This is because technical analysts believe a great deal in momentum. An asset that has a positive momentum is likely to continue for some time.
When you couple the momentum of the price of the coin with an increase in volume, the bullish outlook is further cemented. Below is a list of the biggest movers over the last 24 hours.
Image source: eveningstar.ioAs you can see, EOS is also one of the coins that has gained the most over this window. This means that not only is the market cap relatively attractive but it has volume behind it.
5. Social Following
Social following is the amount of people who have followed the project on a social media platform such as Twitter and Facebook.
Why is this important?
Well, quite simply, the more followers there are for a coin, the more interest there is in it. The announcements of the project are being viewed by more people. These people are likely to spread the knowledge of the coin through their social channels as well.
Moreover, apart from the benefits of having a large audience, it also shows that the project is generally interesting. It shows that the developers are more engaging with their audience and it shows that the audience view the project has strong potential.
If we take a look at Steemit, we can see that they have a great social media following that helps them easily recruit new users to the platform and grow the value of their native currency. A project with a great social following stands a better chance for mass adoption.
6. Google Search Trends
Source: FotoliaWe all know that the first place people turn to when they are looking for information is Google.
Google search trends are a powerful indicator of the amount of interest there is in a particular term. For example, one can examine the Google trends and observe the correlation with Bitcoin price movements and the term "buy Bitcoin".
By utilizing Google Search Trends we can determine how many people are actively searching for a particular asset. Hence, if you notice an uptick in the search related queries for a particular coin then it is fair to assume that there is more interest for it.
More interest in the coin means more people are potential buyers which could impact demand and hence price. Likewise, if the searches start trailing off, then it shows that there are less people interested in buying the coin which could slow demand.
If we take a look at Monero (XMR), we can see that this asset has an impressive trends record, and this means an influx of potential new investors or users for their currency.
Handy Tools for Screening
Most of the above information is publically available through a number of websites. However, the easiest way to screen for these factors is by using a cryptocurrency analysis tool.
By using an online tool you can see all of the relevant factors in one place. It also makes it easy for you to compare investments that have similar technology but where other factors may result in extremely different outcomes for investors.
For example, Cointobuy is an effective resource that is also free. This allows you to screen potential investments for factors such as the ones presented above.
You can also easily sort coins by market cap, price, profit potential, and safety ranking to help you quickly identify hidden gems with the potential to achieve substantial gains.
Conclusion
Cryptocurrencies need not be a complete black box when it comes to investing. As we have shown with the above six factors, many of things that drive demand and price for a coin are pretty self explanatory.
Moreover, with thousands of coins that are currently flooding the market, "anaysis paralisis" can sometimes follow. By having a simple set of metrics that screen for those coins with the most potential, you are most appropriately able to narrow down your search.
It is important to note though, that these are just rules of thumb which can help you find potential investments. You still have do more research into the coin and make sure that you completely comfortable with your investment.
In crypto speak, Do Your Own Research (DYOR) is one of the most important acronyms around.
