Asset Valuation involves the estimation of the current worth of an asset. Assets are valued for making better investment decisions, particularly when investing or trading cryptocurrencies with high volatility levels. Generally, there are two valuation methods for cryptocurrency, including technical analysis and fundamental analysis.
Technical analysis and fundamental analysis for cryptocurrency are similar to that of stocks. While Technical analysis utilizes the historical performance of an asset to predict what it will do in the future, the fundamental analysis identifies the inherent value of a digital asset. It assesses all past and current factors which can influence the value of an asset.
Fundamental analysis evaluates the current plans, management, and perception of a digital asset. In fact, it tries to determine if the asset is overpriced or underpriced and is most applicable for long-term investment. At the same time, technical analysis is most appropriate for trading or short-term investments.
While technical analysis might seem more quantitative or mathematical, fundamental analysis is more qualitative or theoretical. They are both important for crypto trading and investment, whether your interest is long-term or short-term. Due to the high volatility of cryptocurrencies, both analytical methods will help you develop a great strategy to manage your investment.
Technical analysis for a cryptocurrency
Technical analysis for a cryptocurrency tries to predict a coin’s price by analyzing volume data and past prices. In fact, it utilizes past trends and data to predict the future. Technical analysis is done with the help of several tools and technical indicators; however, the more popular ones include; trend lines, candlestick charts, moving averages (MA), Relative strength index (RSI), support, and resistance. Meanwhile, other technical indicators utilized for technical analysis include On-Balance-Volume (OBV), Average directional index, scholastic oscillator, and moving average convergence.
Support and resistance are lines that indicate where the price of an asset stops increasing or decreasing. Moreover, technical analysis helps determine areas of support and resistance, which you can use to define your trading strategy.
Trend lines are used to indicate a trend. At the same time, candlestick charts show the magnitude of price movement over a given time frame and are represented in two colors, green for positive or bullish and red for negative or bearish candles.
Moving averages also help to show the average price of an asset over a defined time frame. In fact, it consists of simple moving averages (SMA) and exponential moving averages (EMA). Also, the Relative strength index (RSI) reveals whether a digital asset has been overbought or oversold.
Fundamental analysis for a cryptocurrency
Fundamental analysis evaluates a coin or an asset’s value by considering its technology, team, roadmap, future, growth prospects, news, and community. Other consideration also includes the project’s partnerships, demand, liquidity, market cap, regulations, price history, competitors, and development.
Fundamental analysis looks at what the project is about, both responsible and those backing the project. The project itself is evaluated to find out if the project is beneficial, why, and whether people will adopt it.
Roadmaps are plans which the team has for the cryptocurrency project. In fact, it is usually contained on white paper. In the white paper, the Project team elaborates on the details of the project and the problem it is intended to solve.
When analyzing the team, the profiles of people behind the project, their background and knowledge, and experience are scrutinized. Community refers to the opinions of others on the project and the general vibes around it. One may also pay attention to their social media community and the exchanges that list and trade the asset.
In summary, technical vs fundamental analysis
|Technical analysis||Fundamental analysis|
|Investment duration||Short term: hours, days, weeks||Long term: months, years|
|Technique||Quantitative or mathematical||Qualitative or theoretical|
|Tools and technical indicators||trend lines, candlestick charts, moving averages, relative strength index, support and resistance, on balance volume|
|What to consider||Technology, team, roadmap, future, growth prospects, news and community, partnerships, demand, liquidity, market cap, regulations, price history, competitors and development.|
|Resources||Market trends and Past statistical data||Past and present information|
|Objective||Tries to determine the best entry and exit points based on past price and volume data||Tries to determine the intrinsic value of an asset|
Similarities between technical and fundamental analysis
They might be different, but technical and fundamental analysis still has some similarities between them. The apparent similarity between the two is that they are both techniques for the valuation of an asset. Another similarity is that they both look at past records or data. Technical analysis looks at past trends, while fundamental analysis looks at the past and current information.
So, technical and fundamental analysis are two different ways of evaluating or predicting an asset’s future price. In fact, everyone buying or trading digital assets like cryptocurrency needs to employ some valuation methods. Maybe you are in it for the long or short term, regardless of whether you are an investor or a trader. Combining both methods give a better overview of an asset so you can make smarter investment decisions.
Technical analysis and fundamental analysis for cryptocurrency are similar to that of stocks. While Technical analysis utilizes the historical performance of an asset to predict what it will do in the future, the fundamental analysis identifies the inherent value of a digital asset. Additionally, it assesses all past and current factors which can influence the value of an asset.
Moving averages, Relative strength index, On Balance Volume are some of the technical indicators used to do technical analysis. Fundamental analysis evaluates a coin or an asset’s value. It does this by further considering its technology, team, roadmap, future, growth prospects, news, and community.