Analysis of sentiment on the cryptocurrency market: in my previous educational article, I talked about how to use the fundamental analysis when identifying the best performing cryptocurrencies. The fundamental analysis is the first Diamond Analysis point of Invest Diva or IDDA. The third point of the IDDA is the analysis of market sentiment. When it comes to investing in cryptocurrency, the analysis of market sentiment is very different from the analysis of other financial instruments such as stocks and exchanges.
Points of analysis of sentiment on the cryptocurrency market
As I report in my book Cryptocurrency Investing for Dummies there are 6 key sentimental elements to watch out for when analyzing market sentiment.
1- Knowing the Community
While the society behind the cryptocurrency may have a role in the direction in which the cryptocurrency goes, the network that participates in their blockchain technology is an important key to its success. Many cryptocurrencies depend directly on the participation of their community, such as miners and developers, as I will explain in chapter 7 of my book. Most crypto communities have their own forums on places like:
These forums are great because they not only give you an idea of what kind of people are involved in the coin ecosystem, but you can also find out more on the cryptocurrency itself.
2- The exchanges that bear the crypt
As I discuss in chapter 4 of Cryptocurrency Investing for Dummies
the exchanges of cryptocurrencies are a large part of the whole ecosystem. While you want to make sure that the cryptocurrency exchange brings your encrypted choice, it is also a good idea to choose the cryptos that are listed on many different exchanges. Exchanges choose cryptocurrencies that they carry with care. So if you can find your finalists on many different exchanges, it means that many exchanges have discovered that encryption is valuable enough to carry. Therefore, the demand may be higher and you can do more with your investment. You can discover the exchanges that carry your cryptography of choice on websites like coinmarketcap.com.
3- Discover its volume
The volume indicates how much cryptocurrency has been exchanged in a given period of time. It's important because it tells you how easily you can buy or sell that cryptocurrency. The greater the volume, the easier it is for you to exchange it. You can check and compare the volume of cryptocurrency on websites such as https://www.cryptocompare.com/ and coinmarketcap.com where they show the number of coins that have been exchanged in the last 24 hours. You can also examine which exchanges have had which volume. Generally, the largest and most popular coins are exchanged more. But if you're trying to choose a cryptocurrency within a specific category (and not just going for celebrity cryptos), trading volume can be a very important indicator in making your decision.
Other factors of feeling of the cryptocurrency market
There are other elements to be verified when conducting sentiment analysis on the cryptocurrency market, including the market capitalization of currencies and . Total supply. Check out Cryptocurrency Investing for Dummies for more information.
As a fourth point in the IDDA technique, you must calculate your risk tolerance before deciding on the investment strategy that fits your portfolio.
Do not forget to complete the risk management due diligence before developing your investment strategy.
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