Many investors who are new to Bitcoin don’t know much about analysing individual digital currencies, so they can benefit significantly from learning some quick tips on the matter. This article provides some straightforward methods investors can use in order to make better-informed decisions about whether to buy Bitcoin.

Basic Types Of Analysis

Investors who are considering Bitcoin should keep in mind that there are three basic types of market analysis: fundamental, analysis and sentiment.1)Retrieved 29 November 2018 https://cryptoverze.com/types-of-market-analysis/

    • Fundamental analysis looks at key variables that affect the supply and demand surrounding a digital currency. This is a perfectly reasonable approach, as an asset’s price is a function of supply and demand.
    • Technical analysis involves looking at market data—for example, price and trading volume) in order to get a better sense of conditions.2)Retrieved 29 November 2018 https://cryptoverze.com/types-of-market-analysis/ By reviewing this information, technical analysts hope to get a better idea of what the market will do going forward.
    • Sentiment analysis involves getting a better sense of the mindset of traders.3)Retrieved 29 November 2018 https://cryptoverze.com/types-of-market-analysis/ The market consists of investors who collectively cause prices to move. If an investor can get some sound insight into what they are thinking, they may be able to make better-informed decisions.
      One practical way to get a better sense of the sentiment surrounding a digital currency like Bitcoin is to look at the long and short data that is available.4)Retrieved 29 November 2018 https://hackernoon.com/sentiment-analysis-in-cryptocurrency-9abb40005d15 Bitfinex, for example, has provided much of this information to the public through its API. Another potential source of information is Google Trends data, which can provide insight into search interest for key terms like “Bitcoin.”

Learn The Economics Of Bitcoin

If an investor wants to be ready to make well-informed decisions regarding Bitcoin, they can benefit greatly from learning about the economics surrounding the digital currency. While some may think that Bitcoin is merely a technology, that is a very superficial assessment, as it’s an economic system made possible by the existence of digital currency.5)Retrieved 29 November 2018 https://blog.goodaudience.com/so-you-want-to-learn-about-bitcoin-163883679321

Learning about the economics surrounding Bitcoin can compel an investor to explore many questions, for example “What is money?” and “What makes money valuable?”6)Retrieved 29 November 2018 https://blog.goodaudience.com/so-you-want-to-learn-about-bitcoin-163883679321 While these questions may seem a bit more theoretical, investors who are considering Bitcoin need to learn more about practical figures, such as the digital currency’s supply.7)Retrieved 29 November 2018 https://hackernoon.com/5-cryptocurrency-investment-tips-6e9e23e223be Bitcoin’s total supply is fixed at 21 million, while roughly 17.4 million units of this digital currency had been mined at the time of this writing (December 2018).8)Retrieved 29 November 2018 https://www.blockchain.com/en/charts/total-bitcoins Another key metric is market capitalisation (market cap), which is a measure of an asset’s total value. This metric can help an investor get a quick glimpse of Bitcoin’s total value.

Investors should also keep in mind that many units of Bitcoin have been lost. There are plenty of anecdotes about this sort of thing, such as a person throwing away (or simply misplacing) their private keys, which would prevent them from being able to access their bitcoins.

According to an estimate provided by blockchain research firm Chainalysis, between 2.78 and 3.79 million units have been lost forever.9)Retrieved 29 November 2018 http://fortune.com/2017/11/25/lost-bitcoins/ Chainalysis arrived at these figures after performing some thorough empirical analysis on the blockchain, the distributed ledger that records all of Bitcoin’s transactions.

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Don’t Fall Victim To Hype

Investors who are thinking about getting involved with Bitcoin should remember that the entire digital currency market has historically experienced some very sharp volatility. The total value of this market climbed significantly in 2017, for instance, from roughly US$17.7 billion at the start of the year to roughly US$600 billion at the end.10)Retrieved 29 November 2018 https://coinmarketcap.com/ This represented a gain of more than 3,000%.

While this bull market was certainly impressive, the cryptocurrency market dropped significantly the following year, trading close to US$135 billion in November 2018.11)Retrieved 29 November 2018 https://coinmarketcap.com/ This figure represents a decline of more than 75% from the start of 2018.

Summary

When evaluating Bitcoin, potential investors can benefit from harnessing fundamental, technical and sentiment analysis while also learning more about the economics of Bitcoin, namely the various factors that affect supply and demand. These variables are crucial, since price is a function of supply and demand. Also, investors should remember that hype plays a big role in the digital currency markets, and they must be wary of how it can affect the market’s movements.

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

References   [ + ]

1, 2, 3. Retrieved 29 November 2018 https://cryptoverze.com/types-of-market-analysis/
4. Retrieved 29 November 2018 https://hackernoon.com/sentiment-analysis-in-cryptocurrency-9abb40005d15
5, 6. Retrieved 29 November 2018 https://blog.goodaudience.com/so-you-want-to-learn-about-bitcoin-163883679321
7. Retrieved 29 November 2018 https://hackernoon.com/5-cryptocurrency-investment-tips-6e9e23e223be
8. Retrieved 29 November 2018 https://www.blockchain.com/en/charts/total-bitcoins
9. Retrieved 29 November 2018 http://fortune.com/2017/11/25/lost-bitcoins/
10, 11. Retrieved 29 November 2018 https://coinmarketcap.com/