Educational Byte: Fundamental & Technical Analysis of Crypto Markets

26 May 2024

Markets and prices are just the tip of the iceberg in cryptocurrencies, and not the main reason for them to exist. However, they could be important as well for investors and crypto enthusiasts interested in their favorite coin's well-being for any reason. That’s why they’re thoroughly analyzed by many people every day, and there are two main ways in which they do it: fundamental and technical analyses.

It’s important to note that none of these techniques is a way to know for sure about the future, even if price forecasts are common among many traders. They barely work to understand the present, often based on the past behavior of the asset being analyzed, but aren’t a bullet-proof way to navigate the complex and volatile cryptocurrency markets —only because that bullet-proof way doesn’t exist at all.

Taking that into account, we still can use fundamental and technical analyses to understand how crypto markets work, and their potential price movements into the future. Let’s see more of it.

What is Fundamental Analysis?

This is a set of methods that lets users and investors determine, more or less, the intrinsic value of a certain coin. The intrinsic value itself is a subjective concept, but we can say it refers to the perceived true worth of an asset based on its native characteristics and underlying factors, rather than its market price. For instance, we could wonder about the real utility and/or legitimacy of a certain coin, instead of looking at its price chart.

Besides, fundamental analysis in the crypto realm encompasses unique elements tailored to the decentralized nature of these assets. For this analysis, we can check a cryptocurrency's whitepaper, scrutinizing its technological innovation, scalability, and real-world applications. This also includes the expertise and track record of the project's team (or if it's anonymous), which could be crucial for gauging the likelihood of successful execution.

Tokenomics study plays a pivotal role as well, examining factors like total supply, circulation, and utility within the project's ecosystem. This evaluation could help forecast a token's long-term value, considering aspects such as scarcity and its role in transactions and governance.

More factors to research in the fundamental analysis are partnerships and collaborations with established entities, general social sentiment and community support, regulatory landscape, news and announcements, and security assessment to establish the level of network robustness, consensus mechanisms, and resilience against potential threats. Together, all this data can give us a more solid idea about the potential value or future success of the analyzed ecosystem.

What is Technical Analysis?

While fundamental analysis examines external factors influencing the market, anticipating that the market will eventually mirror these factors, technical analysis centers on the market's internal dynamics, asserting that historical patterns can, to some extent, predict future market behavior. Also, it often involves more quantitative than qualitative features.

In a technical analysis, one must study past market data, primarily price and volume, to forecast future price movements and identify trading opportunities. This analysis relies on charts, patterns, and statistical pointers to measure market sentiment and trends. By examining historical price action and patterns, technical analysts aim to predict potential price movements and make informed trading decisions.

Technical analysis doesn’t consider the intrinsic value of an asset, focusing instead on price movements and market psychology, often for the short term instead of the long term. It’s widely used by traders in the cryptocurrency market to identify entry and exit points for trades and to manage risk.

Some indicators used in this type of analysis include candlestick patterns (visual representations of price movements) and chart analysis to detect trends and reversals, while also relying on support and resistance levels (of the price) to forecast future value movements. Additionally, RSI (Relative Strength Index), MACD (Moving Average Convergence Divergence), and Bollinger Bands are tools used by professional traders to understand market trends and potential entry or exit points.

Moving averages smooth out price data over a specified period, helping to identify trends. RSI measures the speed and change of price movements to determine if an asset is overbought or oversold. MACD combines two moving averages to show changes in momentum. Meanwhile, Bollinger Bands use volatility to gauge the range of price movement and identify potential breakouts or reversals.

There are more techniques to study and use in technical analysis, but we can sum them up into one thing: playing with the numbers in a price chart and trying to discover statistical patterns and make predictions.

Fundamental and Technical Analyses in Obyte

To apply these research methods in Obyte, one could begin by reviewing Obyte's whitepaper and official website to understand its underlying technology, including its unique features such as Directed Acyclic Graph (DAG) architecture, tokenomics, and smart contract capabilities. Evaluating the team behind Obyte, which isn’t anonymous, could also add to the investigation.

More elements to consider would be adoption and use cases, utility in decentralized applications (Dapps), and partnerships and announcements. On the other hand, a technical analysis of Obyte would involve studying the price movements and market data of GBYTE (the main asset of this platform) to identify short-term trading opportunities. Traders would analyze Obyte's price charts on platforms like CoinMarketCap or CoinGecko to identify volume, patterns, trends, and key support and resistance levels.

Overall, both approaches play vital roles in evaluating Obyte and other cryptocurrencies. Fundamental analysis provides insights into a project's intrinsic value, technology, team, and market adoption, guiding long-term investment decisions. Meanwhile, technical analysis helps traders navigate short-term price movements and market sentiment. By combining them, investors can gain a comprehensive understanding of their preferred asset’s potential and make well-informed decisions in the dynamic crypto market.

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