Cryptocurrency came to life in January 2009 through Satoshi Nakamoto, a pseudonym invented the blockchain system, which became the foundation of the cryptocurrency market, and launched Bitcoin; the most well-known digital cryptocurrency. Digital currencies are exchanged using the computer network, guided by principles of cryptocurrency and not reliant on central authority.
Technical analysis (TA) examines the price movements and trading volumes in financial markets. The use of historical price data to forecast future price patterns is advantageous in the erratic cryptocurrency market. Traders can use this analytical method instead of just fundamental analysis to make well-informed judgments.
The book titled ‘Technical Analysis of Stock Trends’ by (Edwards and Magee, 1987). Magee was considered as ‘The Chartist’ because he charted/graphed individual stocks, averages and trading volumes, becoming the first known disciplined technical analyst to trade solely on the stock price and its pattern on the historical charts.
Finding possible reversal levels in a trending market is one of several ways to profit from cryptocurrency trading by using the Fibonacci Retracement; a technical analysis tool, it is also possible to use software. According to the online platform FXOpen Ltd (2024), using the software to observe price action at the 38.2%, 50%, and 61.8% levels, that every stage serves as a potential reversal point. The asset will likely go to the next level if the price breaks through one level, indicating that the trend is still going strong. With the help of trend indicators like the Simple Moving Averages (SMA), Exponential Moving Average (EMA), Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD), which are part of the TA toolbox, traders may successfully analyse movements in the unpredictable cryptocurrency landscape.
Making better trading decisions requires analysing both volume and price variations. To help identify central reversals or continuations of current trends, the stochastic oscillator indicator developed by George Lane in the late 1950’s (Wikimedia Foundation, Inc., 2024), can be used to assess whether an asset is overbought or oversold, for instance values over 80 suggest cryptocurrency is overbought, and values below 20 indicating oversold. Please refer to the appendices for the calculation.
Fundamental analysis (FA) examines various intrinsic factors that influence the cryptocurrency market, by using FA to discern trends and potential shifts in market sentiments via identifying patterns, analysing data such as adoption rates, regulatory developments, technological advancements, and tracking the growth of the blockchain networks which correlates with increased investor interest. Financial statements can be analysed using the FA technique to find investments that are undervalued. It looks beyond candlestick movement to consider an asset’s long-term potential. The book Security Analysis from the 1930s is recognised for having laid the groundwork for fundamental analysis, (Graham and Dodd, 2002) published following the 1929 stock market crisis, the book urged investors to examine financial accounts and seek for assets that were undervalued.
FA is used in ‘Market Cycles’ for aligning investment strategies to current market conditions, understanding these four cycles; accumulation, markup, distribution, and markdown are essential in helping investors navigate around and make wise choices in the erratic cryptocurrency market.
Key concepts on tops, bottoms, trends, and tape reading were introduced by Richard Wyckoff in the early 1900s. A market analysis theory for traders and investors in the twenty-first century, his ideas- such as the Wyckoff method, market cycles, market phases, rule, supply and demand remain relevant in cryptocurrency trading. For example, the method’s “Law of Supply and Demand” states that prices rise when demand exceeds supply, and fall when supply exceeds demand, as demonstrated in his book (Wyckoff, R.D., 1931).
Please refer to the appendices for the calculation.
The future of cryptocurrency and its integration into various applications, products and services appears promising and suggests an evolving role, driven by a growing ecosystem and increasing demands for its functionalities (please see Figure 1. Mind Map). It is anticipated that the utility of offers and the way in which value is delivered will grow as the cryptocurrency platform that facilitates exchanges keeps adding new services. As decentralised finance (DeFi) applications gain popularity, advancements in the cryptocurrency ecosystem’s integrations also offer new opportunities for the selected digital assets. This development might increase the allure of cryptocurrency as a digital asset and firmly establish it as the go-to-way to transact on a variety of blockchain platforms. According to business trends and legal considerations, the bitcoin platform’s survival depends on its capacity to remain flexible. In the cryptocurrency world, its verified success as a major user choice for digital assets and preferred transactional exchange platform will probably depend on its capacity to satisfy user expectations while maintaining compliance. Users and investors must be informed as the continuous development and regulatory factors will further influence its future course.
Critical analysis by Jenny Cameron, MBA, Business Analyst
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