Fundamental analysis is a procedure for determining the valuation of a financial asset. To decide whether the valuation of an asset is rational, a fundamental analyst examines both economic and financial variables. This may involve macroeconomic factors such as the state of the broader economy, conditions in production, or the sector associated with the asset (if there is one). And these are also followed by leading and lagging macroeconomics measures.
Analysts aim to assess whether the commodity is undervalued or overvalued until the fundamental analysis is full. This inference should be used by investors when making their investment decisions.
In cryptocurrencies, fundamental research can also involve an evolving area of data science that is concerned with the on-chain metrics called public blockchain details. These metrics may include the hash rate of the network, the top holders, the number of accounts, transaction analysis, etc. Using the abundance of available data on public blockchains, researchers will establish nuanced technological metrics evaluating certain dimensions of the network’s overall health.
Although fundamental analysis is commonly used in the stock market or Forex, in its current state, it is less applicable to cryptocurrencies. When developing the decentralized cryptocurrency market, a new way of evaluating value has become popular.
The theory of “Wisdom of the Crowd” is the theory that vast groups of people are smarter than individuals and, over time, make different choices. James Surowiecki first postulated this hypothesis when he authored a book about it called The Crowds’ Wisdom. In Surowiecki’s book, he showed that in a variety of different fields, large groups had made wiser decisions. Biology, psychology, behavioral economics, pop cultures, and many other fields cover these fields.
The wisdom of the theory of crowds is based on the idea that a group of people has a higher level of awareness than a person or only a few people. It is easier for a crowd to make better decisions than just one or two people because of this reality. In other words, “collective judgment” can be much more reliable and qualitatively higher than individual judgment.
There are several means of adapting the wisdom of crowds to cryptocurrencies. For instance, the incredibly high number of people jumping into cryptocurrencies reflects that a large audience is sponsoring this financial trend. Indeed, Coinbase, one of the world’s largest cryptocurrency exchanges, launches as many as one million new accounts per month.
It’s much easier to assume that cryptocurrencies would certainly be a long-term development as you know the high volumes of people that flood into them. It would be much less compelling to say cryptocurrencies would be a common movement when you just look at a handful of people who have invested in them.
The awareness of crowd theory and decentralized prediction markets might theoretically help to forecast long-term patterns and bubbles because cryptocurrencies are so young and so unpredictable. This may be particularly beneficial because thousands of cryptocurrencies are currently on the market. Therefore some knowledge that can help investors find out which cryptocurrencies are likely to grow in value would be highly valuable.
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