Cryptocurrency Market Sentiment Analysis: In my previous educational piece, I talked about how to utilize Fundamental analysis when identifying top-performing cryptocurrencies. Fundamental analysis is the first point of Invest Diva’s Diamond Analysis or IDDA. The third point of the IDDA is market sentiment analysis. When it comes to cryptocurrency investing, market sentiment analysis is very different than analyzing other financial instruments like stocks and forex.
Cryptocurrency Market Sentiment Analysis Points
As I cover in my book, Cryptocurrency Investing for Dummies, there are 6 key sentimental elements you need to watch out for when conducting market sentiment analysis.
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1- Get to know the community
While the company behind the cryptocurrency can play a role in the direction the cryptocurrency goes, the network who participates in their blockchain technology is an important key to its success. Many cryptocurrencies directly depend on the participation of their community, like miners and developers as I explain in Chapter 7 of my book. Most of the crypto communities have their own forums on places like:
These forums are great because they not only give you a sense of what type of people are involved in the coin’s ecosystem but also you can find out more about the cryptocurrency itself.
2- Exchanges who carry the crypto
As I discuss in Chapter 4 of Cryptocurrency Investing for Dummies,
cryptocurrency exchanges are a big part of the whole ecosystem. While you want to make sure that your cryptocurrency exchange carries your cryptos of choice, it is also a good idea to choose cryptos that are listed on many different exchanges. Exchanges choose the cryptocurrencies they carry carefully. So if you can find your finalists on many different exchanges, that can mean many exchanges have found that crypto to be valuable enough to carry. Therefore, the demand for may be higher, and you can do more with your investment. You can discover the exchanges who carry your crypto of choice on websites such as coinmarketcap.com.
3- Check out its volume
Volume means how much cryptocurrency got traded within a specific time-frame. It’s important because it tells you how easily you can buy or sell that cryptocurrency. The higher the volume, the easier it is for you to trade it off. You can check and compare cryptocurrency volume on websites such as https://www.cryptocompare.com/ and coinmarketcap.com where they show the number of coins that have been traded in the last 24 hours. You can also examine which exchanges had what volume. Generally, the biggest and most popular coins are traded the most. But if you’re trying to choose a cryptocurrency within a specific category (and not simply going for the celebrity cryptos) trading volume can be a very important indicator in making your decision.
Other Cryptocurrency Market Sentiment Factors
There are other elements to check when conducting cryptocurrency market sentiment analysis including coin market capitalization and Total supply. Check out Cryptocurrency Investing for Dummies for more.
Don’t forget to complete your risk management due-diligence before developing your investment strategy.