Analyzing the Crypto Market: 4 Factors and Developments to Watch

Analyzing the Crypto Market: 4 Factors and Developments to Watch

Analyzing the Crypto Market: 4 Factors and Developments to Watch

For years, cryptocurrencies have fought their way to become mainstream financial instruments. However, 2020 brought significant changes to crypto markets that go beyond bigger-name recognition. Major companies and financial institutions began to take a closer look at Bitcoin as a long-term asset. For example, Tesla invested $1.5 billion in Bitcoin.

And it wasn’t alone. Financial institutions such as the U.K.-based Ruffer Investment Management have decided to invest in Bitcoin, as well. In Ruffer’s case, its slice of the cake amounted to $745 million in Bitcoin.

If you’re reading this, you likely follow Bitcoin pretty closely. It’s the best-known cryptocurrency in the world, but it’s far from the only viable option for individual investors. Here, I’ll outline some important factors to consider when it comes to analyzing crypto markets.

Analyzing the Crypto Market: 4 Factors and Developments to Watch

How To Spot Cryptocurrency Trends

Traditionally, investors rely on three types of analysis when deciding where to put their money. Let’s break down what those are:

• Technical: This kind of analysis focuses on detecting trends by looking at historical data and price movements. For example, when an institutional investor with big-name recognition announces a large investment in Bitcoin, the price often goes up.

 Fundamental: Fundamental analysis doesn’t focus solely on data; it also looks at what companies are doing and how they’re being managed. A crypto example would be Ripple, which is still embroiled in a lawsuit with the Securities and Exchange Commission. This means it probably won’t be a good year for the currency.

• Public perception: This is where articles, opinion pieces, and even tweets come in. If public perception of an asset, such as a cryptocurrency, is good, then its value might be headed up.

As an individual investor, relying on technical analysis is difficult because you likely don’t have access to the same sophisticated tools and comprehensive data as investment firms and hedge funds. That means if you’re trying to predict trends, you’ll generally want to analyze the fundamentals and public perception.

Four Cryptocurrency Developments To Watch

Understanding where the cryptocurrency market is headed and what is currently happening in it will help you make better financial decisions. Here are four cryptocurrency developments to watch.

• PayPal’s involvement in the space: PayPal debuted its crypto purchasing service in 2020 for U.S. users. The service has stated its intention to expand into international markets in 2021, making it easy for more of its users to invest in cryptocurrencies. That could translate to surges in the price of the cryptocurrencies the service supports, such as Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. At the moment, PayPal seems poised to double down on its investment by purchasing Curv, a crypto custody firm.

• Ethereum’s rise: Ethereum surged over 450% in 2020 and has continued to rise in 2021. In early February, the CME Group opened the floor for trading on Ethereum futures, which could fuel institutional investment and speculation in the market.

• Regulatory interest: As more money finds its way into the crypto markets, it’s only a matter of time until new regulations are created. Cases like the one against Ripple Labs are a clear signal that regulatory entities keep a close eye on the markets. Moreover, the U.S. Treasury Department recently issued a proposal that would deem some cryptocurrencies as monetary instruments, increasing recordkeeping requirements. If regulation becomes aggressive, that could scare away individual investors, but perhaps not institutional ones, who would gain more control over crypto markets.

• Continued market volatility: Despite significant institutional adoption, cryptocurrency markets are more vulnerable when it comes to “emotional” investing. And despite major cryptocurrencies such as Bitcoin and Ethereum being bullish, the market remains highly volatile partly due to the number of options open for investing. Until there is more mainstream crypto adoption, it’s unlikely for the markets to stabilize.

Keep Your Finger On The Pulse

Unless you have access to massive amounts of historical data, day trading cryptocurrencies is generally not recommended. Instead, investors will want to focus on fundamental analysis and invest in solid cryptocurrencies. If you invest in cryptos with a strong foundation for the long term, you’ll have a better chance of seeing earnings.

To be a savvy crypto investor, you need to keep up with the latest news in the market and monitor rising coins to decide if they’re worth your time or they’re just time bombs. If you can do that, you’ll be well ahead of the curve.

Consult with a licensed professional for advice concerning your specific situation.