5 indicators to consider when making long-term crypto investment decisions
Are you wondering whether you should buy bitcoin and either hold the digital asset in your portfolio short or long-term? Well, regardless of the position you decide to take, it’s best to get some direction by utilizing technical analysis and fundamental analysis tools.
Cryptocurrency trading indicators work if not exactly but almost the same way as traditional tradable asset indicators. Whether you want to trade crypto, forex, stocks, or even other assets or commodities, you should get some sense of direction from these indicators before you invest.
Without technical analysis and proper study of the fundamentals, you will be trading out of ignorance and wishful thinking. And this is not something anyone wants to do using their hard-earned money. The crypto market is highly volatile, with many unpredictable outcomes due to different variables.
In today’s post, we’ll show you some of the most important and top five indicators to check before choosing a long-term position.
Find out how to carry out Technical analysis as a beginner.
Market Capitalization
Simply put, market capitalization is the metric used to measure the relative size of a cryptocurrency. It is calculated by multiplying the current price of a particular coin or token with the total number of the same coin in circulation.
As of the time of writing this article, the crypto market share is over 1 trillion US dollars. With Bitcoin having a dominant figure of just above US$1 trillion, Ethereum at around $200 billion, and over $50 billion being shared among other cryptocurrencies.
What you need to understand is that the larger the market cap volume the lesser the volatility. What this means is a large market cap shows dominance, which is a good indicator for choosing a long position. Take for instance Bitcoin with a market cap of $1 trillion which is more than 70% of the entire crypto market size. This indicates that one could buy bitcoin as a long-term investment.
However, as a long-term investor, you will want to avoid projects with a very small or low market cap volume. This is because cryptocurrencies with low market caps could be subject to pump and dump schemes, and result in you losing your hard-earned money. You should target projects with say at least a $10 billion dollar market share. Based on market cap share, one could pick Ethereum in one’s portfolio for a long position.
Utility and User Base
Before choosing a long position, one of the other things or indicators that you want to check is the utility of any particular cryptocurrency. You should research the usefulness of cryptocurrency, and the robustness of the community that backs it. A good project should have a strong community.
Ethereum is the second-largest cryptocurrency by market capitalization and has a solid community and use-case. It allows smart contracts and developers to build decentralized applications (dApps) on its blockchain.
Another great example of a cryptocurrency with good utility and a decent size community is Cardano. Cardano has been dubbed as the “third generation” of blockchains after Bitcoin and Ethereum. It is created to solve scalability, interoperability, and sustainability.
Litecoin, Binance coin (BNB) are also great examples of cryptocurrencies that have good use-cases and active communities. You can buy these crypto-assets on Remitano P2P exchanges for long-term investment.
Future and Ongoing Projects
This should be a no-brainer, right? Well, not an easy indicator to look out for. Before choosing a long position, you want to know the underlying technology that is driving the cryptocurrency.
The future of the coins listed above is bright and strong. Why? These cryptocurrencies have strong developers and communities. Bugs are being fixed regularly, contributors and more people are joining the projects. The more contributors, developers, and people joining the project, the more valuable it becomes.
Continuous research in order to augment the blockchain technologies powering cryptocurrency projects and support the ongoing development is crucial. Ethereum for example is moving from its proof-of-work (PoW) to a proof-of-stake consensus mechanism with Ethereum 2.0. This is going to improve scalability and speed of the network.
The new EIP 1559 is going to solve the long due problem of high Ethereum network gas fees and also improve the user experience. Projects and developments like this have arguably played a significant role in the recent spike of Ethereum’s price.
The crypto world is an exciting one, and hence positive and exciting developments often lead to adoption. So, before you choose a long position you want to have all these boxes checked and ticked.
Volume and Transaction
Trading volume is the number and value of trades of a particular coin at a particular time. For example, if Tom sells 2 BTC at the rate of 20K USD for each, then the volume of the transaction is simply 40K USD or 2BTC.
A coin’s trade volume helps to clarify two things – it helps to checkmate sudden rise and fall in market price, and it’s also a good indicator that the coin is being actively traded.
South Africa ranks as the 10th biggest country in terms of bitcoin trading volume, thanks to P2P and spot crypto exchanges available in the country.
So far in 2021, the Ethereum network has been able to process more than a million transactions per day, surpassing the number of people that buy bitcoin.
Simpy, an increase in volume should be seen or accompanied by a rising market which is an indication of solid buyer interest. According to a poll by CoinDesk on Twitter, 38% of traders say Volume is a crypto indicator they can’t do without. 30% voted for RSI, 23% for Moving Average, and 9% others. This means that Volume is one indicator you can only ignore at your peril.
What Problem is the Project Solving?
Just like every other business that you know, a good crypto project should be solving a particular problem. Bitcoin is created to disrupt the traditional financial world by eliminating the intermediary between two parties when sending funds.
Before you choose a long position for any cryptocurrency, you need to evaluate the teams behind it, you need to know the project’s mission and vision. That’s not all, you need to understand the roadmap and how plausible it is to accomplish. Reading the project White paper will reveal much of what you need to know about the coin.
You do not want to invest in any crypto project that is not transparent enough with all these. You should only focus on projects that have value and their purpose. Also, you need to understand whether the token is a utility token, security token, transaction token, or platform token?
Carefully studying and evaluating the indicators mentioned in this article would prevent even the average investors from making bad decisions. Traders seeking long-term positions can buy Bitcoin, Ethereum, and Cardano to start with because they are heavily traded, and have stood the test of time.
