Cryptographic indicators that will help you navigate the market
With the adoption and penetration of cryptocurrencies into the media space, many newcomers enter the cryptocurrency market every day, for whom cryptocurrencies are a big mystery. It is for this reason that we have prepared an article for you that examines the main indicators from the world of cryptocurrencies, such resources as Coinmarketrate.com , which you should definitely pay attention to when making decisions.
And so, let’s start…
Market Capitalization (Market Cap)
Tracking the market prices of individual cryptocurrencies is not as revealing as it may seem at first glance. If one asset is worth $50 and the other is $0.5, it does not mean that the more expensive asset is stronger and more stable. The magic behind the different prices of crypto assets is related to the turnover and overall supply of assets.
Therefore, in order to properly understand the strength and size of cryptocurrency projects, it is recommended to track the market capitalization coefficient, which measures the relative size of cryptocurrencies on the market. The market capitalization of crypto projects is calculated using the following formula:
The market capitalization of an asset = the price of the asset multiplied by the number of units in circulation.
To illustrate the calculation of market capitalization, you can use a model example, say, with Litecoin and Cardano cryptocurrencies. Currently, the price of one Litecoin cryptocurrency is approximately 53.8 US dollars, and there are 71,064,000 LTC in circulation. This means that Litecoin’s market capitalization is approximately $3.811 billion. On the other hand, the price of the Cardano cryptocurrency is only $0.44, but there are as many as 33.73 billion ADA in circulation. This means that the market capitalization of Cardano is about $15 billion, which is four times more than that of the Litecoin cryptocurrency.
Market capitalization is an important tool for crypto traders when making decisions, as it gives an idea of the size of a particular crypto project. It can also help crypto-taders determine whether a particular cryptocurrency project is overvalued or undervalued.
The dominance of Bitcoin (BTC Dominance)
The indicator of Bitcoin’s dominance in the cryptocurrency market is determined by the ratio of Bitcoin’s market capitalization to the market capitalization of all existing cryptocurrencies.
In the past, especially in the early days of cryptocurrencies, Bitcoin’s dominance reached 80-90%. However, gradually, a lot of altcoins began to appear on the market, which attracted the attention of investors due to their different approaches and use cases. With the growing number of altcoins on the market, it is not surprising that the dominant position of the BTC decreases over time.
Many investors use the dominance indicator to determine current market trends. For example, when asset prices in the market are rising, but Bitcoin’s dominance is declining, it signals the so-called altcoin season. During the altcoin season, various assets tend to bring higher profits than Bitcoin itself, which leads to a weakening of its dominant position during this period. Crypto-traders who trade not only with Bitcoin, but also altcoins, use this indicator and optimize their investment portfolios based on it.
However, using Bitcoin’s dominance to assess the current market trend is not only related to the altcoin season. Based on the BTC price and its dominance, other trends can be predicted, for example:
- If the price and dominance of BTC are rising, this could indicate a potential bull market for Bitcoin.
- If the price of BTC declines and its dominance increases, it may signal a bear market for altcoins.
- If the price and dominance of BTC decrease, it may signal a bearish trend for the cryptocurrency market as a whole.
However, the Bitcoin dominance indicator should only be considered as a guide for crypto traders when making decisions.
Fear and Greed Index
One of the indicators combining fundamental and sentimental market factors is the Fear & Greed Index. Especially for newcomers to the world of cryptocurrencies, familiarity with this index can be useful and give them an idea of the current situation and market sentiment.
The Fear and Greed Index, otherwise known as the Fear & Greed Index, is a market indicator focused on multi—criteria analysis of market sentiment.
The index analyzes a conditional basket of various trends and market factors on a daily basis to determine whether market participants are greedy or, conversely, their behavior is subject to fear. The index is rated from 0 to 100, with 0 indicating extreme fear and 100 indicating extreme greed.
The index calculates its value by combining six weighted market factors, which include volatility, market volumes and dynamics, social networks, Bitcoin dominance, Google trends and surveys.
The cryptocurrency fear and Greed index can become a valuable tool for checking changes in market sentiment, albeit with a slight delay. Since the index tracks a number of fundamental market indicators, studying this index can give individual traders the opportunity to enter or exit the market before other investors.
A powerful and important indicator of the state of the market is the metric of inflow and outflow of assets from exchanges. This metric tracks the inflow and outflow of Bitcoin or other assets on exchanges, which can be used to determine the potential behavior of investors.
For example, if investors expect that the price of Bitcoin is likely to fall, they will transfer their assets from personal wallets to exchanges to sell them. Thus, the transfer of Bitcoin to exchanges causes an increase in selling pressure, which is reflected in a decrease in their price.
Conversely, if traders expect the price of Bitcoin to rise in the future, they usually transfer their BTC from exchanges to private wallets for long-term storage, mainly for reasons of greater security. In this case, fewer assets are sold on exchanges, which puts upward pressure on the price of BTC.
Traders use this useful metric to predict the behavior of the price of BTC or other assets in the future. The indicator of inflow and outflow of funds from exchanges is very popular and is popular among investors.
Another way to measure the current interest in investing in cryptocurrencies is the so-called open interest of crypto investors. This is one of the most popular metrics based on trading volume, which is the total volume of long and short positions available to traders at any given time. This metric is related to options and futures contracts.
The open interest of investors indicates the inflow of capital to the market: if capital flows into the market, the indicator of open interest increases. However, the opposite is also true. If liquidity leaves the market, the indicator of open interest decreases.
This indicator is a useful tool for analyzing the options and futures market, as it gives an idea of the level of activity in a given market and can be used to measure the level of interest in a particular asset. It is also often used to identify undervalued and overvalued options in the market.
In addition, it is also used by practitioners to analyze trends. The growing open interest indicates that new traders are entering the market, and can be used to confirm the current market trend. A decrease in open interest indicates that traders are closing their positions, and the current trend may weaken.
Total Blocked Cost (TVL)
The Total Asset Value Locked indicator is primarily related to the decentralized finance (DeFi) sector, but is also used to identify locked assets in smart contract protocols. This indicator represents the value of all assets contained in the DeFi protocols that users have locked into smart contracts to provide liquidity and generate income.
TVL has become a key metric for evaluating DeFi projects, as it gives a complete picture of the overall state of the protocol. By analyzing the value associated with the assets contained in the protocol, it is possible to track people’s interest in a particular protocol in the DeFi ecosystem.
The way TVL is measured differs in different DeFi protocols, because each protocol or service in DeFi operates according to its own specific structure, and these differences between them affect the calculation of the total blocking value.
For example, lending-oriented protocols measure their TVL based on assets embedded in the smart contracts of both lenders and borrowers, and derivatives-oriented protocols measure TVL based on the value of assets embedded in smart contracts that provide coverage for synthetic assets and financial contracts.
If a crypto trader is considering placing his funds in the DeFi protocol, the metric of the total blocked value can significantly help him in choosing a liquid and financially stable protocol.