Cryptocurrencies started their journey with Bitcoin, which made so much popularity that crypto and Bitcoin are almost synonymous now. However, time flies and it’s already been more than a decade since cryptocurrencies are circulating in the financial market. Quite naturally, there is a lot beyond just Bitcoin. According to financial market data analysts, more than 5000 different types of cryptocurrencies exist today. And the figure is nowhere near a halt. In this article, we will be discussing the various useful metrics that should be kept in mind when one is dealing with cryptocurrencies.
What are these metrics and why do we need them?
Just like people thoroughly check the value of fiat currencies before investing in them, the same hack goes for cryptocurrencies. Assets concerning crypto must be examined properly before going for it. To analyze the value of existing cryptocurrencies and also of the newly emerging ones, keeping in mind certain metrics and factors are necessary. Being a consumer, one should always be aware of these metrics.
List of metrics that you should follow:
- Market capitalization
This is undoubtedly the most trusted metric that is out there. Market Capitalization is used by almost all the leading crypto trading and exchange websites. Market Cap gives a gross idea of the value of a cryptocurrency in the financial market. The formula to calculate Market Cap is simple:
Market Capitalization = Total supply of coins x
MACD – Moving Average Convergence Divergence
The name itself suggests that this particular metric falls under the category of moving averages. MACD is used to find out the distinction between two shifting averages namely the present MACD and exponential moving average. This helps to show the market trend of cryptocurrencies and is one of the most popular metrics that are out there.
NVT – Network Value to Transactions
Network value is a metric that is further based on Market Capitalization. It is used to analyze the approximate value of a certain cryptocurrency at a given time through a particular transaction activity. Not tested to be completely foolproof, it is calculated in dollars by,
NVT ratio = Market Capitalization divided by the total number of daily transactions
RSI – Relative Strength Index
This is one of the few metrics that are quite easy to understand by both experts and novices. It calculates the rising and falling trends of cryptocurrencies over a given period. More beneficial to swing traders, it signals when an investment can be made.
Analyzing the volume of a market is a process that is popular amongst beginner-level traders of cryptocurrencies. Often due to its simple nature, it is overlooked but volume patterns of the market are an important indicator. Markets that are on a rise have a heavy volume, while on the contrary, dropping prices signifies a drop in the volume as well. These trends are directly proportional to the value of a cryptocurrency.
Some more factors concerning the value of cryptocurrencies are as follows:
- The whitepaper of a coin is its constitution. Its aim and use cases are all recorded in it and it must be researched thoroughly.
- Asset tokens must be checked on various social media platforms to get an overview of their cause and community support.
- A transaction with trusted users of a network is always advised to prevent cases of fraud.
Once a person comes to terms with the working of these metrics, they are ready to invest in crypto. For an easy start, one can start with crypto trading. There are many softwares that you can choose from, one of them being cryptocurrency wallets.
All of these metrics are used in the financial market and they offer a good amount of screening against every cryptocurrency. However, an investor should consider all the plausible options before finalizing the cryptocurrency in which they will invest to get a thorough picture of the market.