What is coin analysis?

Introduction to cryptocurrency research

Cryptocurrencies attract people from all walks of life. According to Gemini’s 2021 State of U.S. Crypto Report, only 45% of active investors and 6% of potential newcomers consider themselves “extremely” or “very” knowledgeable about the crypto space. The gap between growing public interest in crypto and the ability to interpret market indicators and trends is where crypto research comes in.

Investors can choose from a number of free and subscription-based tools, but using them with confidence requires at least a basic knowledge of their methodology. Keep in mind that cryptocurrency analysis is only vaguely similar to that of TradFi, because decentralized assets demonstrate their value differently.

To understand market analysis, think of it as a three-layer structure. Each one relies on the former to provide a deeper understanding of the data.

Raw data

Every cryptocurrency analysis is grounded in raw on-chain data. Sites like CoinMarketCap, CoinGecko or Into the Block present a range of metrics that can yield useful information even on their own.

Hash rate, for instance, constitutes the total computational power used to mine a block (per second). It measures the miners’ readiness to operate and helps to predict mining costs. Hash rate is also a good indicator of the coin’s security level. The higher the hash rate, the more difficult it is to mount an attack.

Indicators

The next level combines isolated metrics into indicators for more in-depth, contextualized information. A savvy investor uses indicators to correct the circumstances that can limit a single metric’s relevance. It’s crucial to identify the indicators that best suit specific investing needs, and compare the same indicators on coins or tokens similar to the one we’re most interested in.

To get an idea of what indicators are for, take a look at MVRV (short for market value to realized value). It confronts market cap with the value of each unit’s price when it last moved, reducing the impact of dormant and burned coins. MVRV is a better barometer of the asset’s stored wealth, because it accounts for historical developments.

Bear in mind that indicators can sometimes be called metrics (and vice versa), because in practice they can act as both. Many analysts also refer to some indicators as ratios.

The bigger picture

Inquisitive analysts use indicators to form insights, weighing numerical values against past or predicted decisions taken by influential crypto creators, external factors such as new regulations or crucial non-economic developments, hacking incidents, energy prices, expected tech improvements, and so on. Insights are considered the most informative and actionable level of analysis available.

Professional crypto research agencies group their insights into technical and fundamental analyses. The first relies entirely on an asset’s recorded performance and existing metrics in order to pinpoint prevalent trends and determine the asset’s intrinsic value. Fundamental analysis complements this with a study of external factors, including the project’s whitepaper and its creators’ past activity.

Keeping in touch

Aside from comprehensive analytical products, data companies can provide investors with general market insights on a daily basis. The newsletter by Delphi Digital, for instance, is packed with charts, news and notable tweets, forming a round-up of crypto crème de la crème. Another notable data company, Glassnode, uses on-chain data to produce The Week On-Chain, available as both a newsletter and blog. Feeds of this kind contribute to a growing awareness of the scope and possibilities of crypto market intelligence, whetting casual investors’ appetite for the cutting-edge tools out there.

Ultimately, there’s no single metric that can tell investors everything they need to know about an asset, and no newsletter that can build an investment strategy. Investors who mean business spend generous amounts of time and money to constantly improve the analyses they use. Investing is a complex game, and analysts are well aware that numbers mean about as much as fleeting human behaviors and moods.