You might be used to staring at charts, but there are other ways to approach crypto investing, gauging sentiment and fundamentals.
If you hold crypto then the chances are you know a bit about charting and have read various analyses of the bitcoin markets. These take technical factors into account – price action, supply and demand – which is fine as far as it goes. But if you want a more rounded picture, and to gain information that many traders and investors simply won’t be using, there are other indicators you should occasionally watch. Here are five of our favourite.
- Google Trends. It won’t come as a surprise that search activity for the term bitcoin correlates well with price. Importantly, and as you might expect, changes in search activity slightly precedes a price move. Google Trends is therefore a good overall indicator of the degree of public interest in bitcoin.
- Bitcoin dominance, or the percentage of the total crypto market cap occupied by bitcoin. Maximalists want to see this number going up. But dominance tends to rise during a bear market as traders de-risk and hold funds in BTC. So this is a contrarian indicator: when you see dominance falling, money is flowing back into the broader crypto sector, which inevitably has a bigger impact on the (more thinly-traded and illiquid) alts.
- NVT, Network Value to Transactions. This is the ratio of the market cap of bitcoin to the daily dollar value of transactions on the network. When a crypto is in bubble mode, NVT is high – because its market cap isn’t reflected in the level on on-chain transactions. It’s a little like the P/E ratio used to value traditional stocks. It’s not a perfect metric by any stretch, and there are more complex ones available, but this is a good (and simple) starting point. It’s also a way to compare different cryptos and looked for those that are underpriced.
- Pending txs. When the network sees periods of higher activity, there’s less free space in blocks and more transactions are left unconfirmed for longer. Assuming that no spam attack is underway, checking pending txs or the size of the mempool offers another metric for gauging the popularity of bitcoin, including how many people are sending BTC to and from exchanges
- Active addresses. Once again, the more active addresses there are on a network, the more we can infer people are using buying and selling. A rising number of active addresses correlates with higher prices, as more ‘regular Joe’ investors buy; a falling number correlates with selling and consolidation as a smaller number of larger traders and believers accumulate coins.
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