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Fundamental analysis of cryptocurrencies. Development of indicators based on metrics

Fundamental analysis of cryptocurrencies.  Development of indicators based on metrics


In previous reviews, the qualitative and quantitative indicators of fundamental cryptocurrency analysis, which are basic, were considered. This is input data, which in itself is not very informative for a novice trader. By themselves, these metrics do not reveal the picture, therefore indicator technical analysis is considered to be deeper. Cryptocurrencies are interesting because standard tools are often used here – moving averages, RSI, channel, trend indicators. But also special tools have been developed for cryptocurrencies based on previously analyzed metrics. About the development of indicators in this review.

An example of building your own indicator from cryptocurrency metrics

An indicator is a tool that combines several metrics using formulas to simplify relationships (not to be confused with the formulas of standard Forex indicators, where most of the formulas are mathematical averaging of the price in one form or another). It’s more like a multiplier.

  • Example. The number of active wallets is a useful metric that shows the degree of investor interest, as well as the ratio of holders to speculative capital. But you can take the percentage of active users from their total number (comparison by active / inactive wallets) and divide the market capitalization of the altcoin / token by this percentage. Or divide the capitalization by the amount of money on active wallets. The result will be the average amount on active wallets. By comparing this indicator with other coins, it is possible to draw conclusions about the activity of the platform and the optimism of users in relation to the project without reference to the size of the startup. For example, if a startup with a capitalization of 100 USD has 5 active wallets, a startup with a capitalization of 20 USD has 1 active wallet, the indicator values ​​will be the same. True, the question is how much is on these wallets. Everything is compared in dynamics, with different metrics and in comparison with other platforms.
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Cryptocurrencies are a young asset, so there are still relatively few polished, working indicators. Therefore, they can be created on the basis of metrics on their own.

Example. Table with metrics for two cryptocurrencies:

Altcoin/token A Altcoin/Token B
Market capitalization 100 million USD 5 million USD
Number of transactions (for 1 year) 20 million 40 million
Average cost of transactions (for 1 year) 50 USD 100USD
Active addresses (1 year) 30 thousand 2 thousand

Comparing coins only by the number of active addresses is subjective. Coin A has more of them, but this does not mean that coin B is less interesting for investors. It would be more logical to compare the ratio of individual indicators. For example, let’s divide the capitalization by the number of transactions. For altcoin/token A, the multiplier will be 5, for altcoin/token B it will be 0.125. This indicates the value of coin B. And even with an equal number of transactions, the value of coin B would still be higher. This means that the utility of coin B for investors is higher. We compare this multiplier with the multipliers of coins C, D, E and evaluate the difference between the multipliers. A gap of 1.5 times is relatively small, a gap of 10 times is large (this is an example).

This example of indicator development shows that any ratio can be analyzed by converting it from a number to a percentage. A little imagination, knowledge in the field of economic analysis and a spreadsheet editor. Analytical portals, links to which you will find in previous reviews, have input data for analysis.

About Eric R. Brinkley

CEO Fxbotreview.com Algotrader. Blogger. I write interesting content, do content with you, and also maintain a website with independent reviews of forex software. Trading robots, Indicators etc..

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