How to Analyze Cryptocurrency Before Investing: Beginner Checklist Guide

This article is all about how to analyze cryptocurrency before actually investing.

How do you evaluate cryptocurrency projects and how do you know they are good?

If you are new to cryptocurrencies and investing, this guide will help you make a good evaluation and analysis before you put any money on the table.

Where should a beginner invest and how should they go about doing a proper analysis of a digital asset?

Let’s just face it, analyzing crypto coins or tokens is not easy and it takes some patience from the investor to make a good call before committing with real money.

Today, I will give you a good base to stand on before you choose your next crypto investment when it comes to fundamental analysis, technical analysis, and sentiment analysis of cryptocurrencies.

I will show you that it doesn’t take much effort to do a basic cryptocurrency project analysis and instead of putting all your efforts into reading up on the project, you can spend more time looking for more opportunities.

But much like any other endeavor in the financial landscape, crypto investments require detailed planning and investigation before you can choose your future investment.

In this guide, you will get a hands-on tutorial and checklist on how to analyze cryptocurrencies that you can apply today to your own investment strategies and analysis.

What to analyze before buying or investing in cryptocurrencies

How do you analyze cryptocurrency in trading or more importantly, in investing?

When it comes to analyzing cryptocurrencies and tokens, some specific areas require extra attention from the investor.

I’ve structured this article to start with cryptocurrency fundamental analysis, the technical analysis of a token, followed by crypto sentiment analysis. Lastly, I will go through some of the best indicators for cryptocurrency price movements and how to actually read the trend of the cryptocurrency market.

At the end of this guide, I will share a couple of recommended cryptocurrency exchanges with very high security.

Below is a content table of what is in this guide.

The most important aspect of analyzing cryptocurrencies is the fundamental side of the token. This is one part of this guide that I recommend that you read first.

This is to get a good understanding of the project and also get to know the team behind the token. There is one fundamental analysis technique that I will highlight in this section and that’s the analysis of the total bank of a cryptocurrency project.

This and much more will be laid out so make sure to read the whole guide before you put your hard-earned money into action.

Cryptocurrency fundamental analysis checklist

How do you know you have a good crypto project?

You start with the fundamentals.

What does fundamental analysis really mean when it comes to cryptocurrencies?

To describe it in the most simple form would be to say that it is the search for the intrinsic, true, or fair value of a coin or token.

Some key factors are important to cover when doing a fundamental analysis of a cryptocurrency token or coin that directly impacts the future price.

When I personally make a fundamental analysis before investing in cryptocurrencies I always make sure to check these 6 important steps:

  1. White paper
  2. Team analysis
  3. Use cases
  4. Adoption
  5. Money Balanace
  6. Google trends

After researching these 6 areas you will have a good idea if the project you are looking at is a good candidate for your investment, if not, go to the next coin and do it all over again.

I want to go through each topic to give you a better idea of what I look at when researching.

White paper

You cannot make a cryptocurrency fundamental analysis without starting with the white paper. The white paper will tell you exactly what the project is about, what kind of problem the company is trying to solve, and the blockchain technology used.

This will give you a rough starting point to your analysis and it will also give you a quick overview if this coin or token is of interest to you.

Some parts of a token white paper can be very difficult to read, especially the tech-savvy part, it’s ok to skip this part if you are not an experienced developer for example.

Here is a snapshot of the Ethereum white paper to give you an idea of what it looks like.

ethereum white paper screenshot

It’s a full explanation of the project and it’s always the first thing you read when doing a quality fundamental analysis of a cryptocurrency.

You can find almost any white paper by searching on google for the name + white paper.

If you like what read on the white paper it’s time to move on to the next step in your fundamental analysis.

Team analysis

Any successful project depends on a strong team, that’s just how things work in the regular world, and also in the world of cryptocurrencies.

An amateur entrepreneur with little knowledge of running a business, planning a project, and most importantly, executing ideas and keeping improving will have a hard time rising to the top.

The team behind a cryptocurrency needs to be on point.

This means that the team members behind the coin or token need to have experience in blockchain technology, business development, project management, and several other niche skills such as coding, design, article writing, online marketing, etc.

Without these skills, the project will never see the sunlight, to begin with, and it will never get the recognition it deserves.

This also means that the actual coin you are looking to invest in will stay at low prices and you will never see the 10x, 50x, or even 100x price increase that is very common in the cryptocurrency landscape.

So, how do you make a good team analysis of a cryptocurrency token or coin?

Here are my top 3 recommended channels for researching the team members:

  1. Linked in
  2. Twitter
  3. Telegram/Discord

On Linked in you will be able to see most people’s history of employment and it’s a great tool to find out what a person has done before and also how successful he or she has been.

Look for high employments such as COO, CTO, or CEO positions. This will increase the likelihood of this project going well and it increases the trustworthiness of the team.

Twitter is a great source as well if it’s available. Here you can read tweets and find out some personal agendas on the team members.

Scroll through their posts and see what they are into and what they have been working on.

Lastly, Telegram and Discord are very often easily accessible for the public and when it comes to new cryptocurrency projects you can most often get in direct contact with the founders and the closest team members.

Ask them any questions you like and you will most certainly get a good response since the team always want to look good outwards.

Now, if the team has passed your analysis and you think they have a good chance of taking this project forward it’s time to get to the next part of your fundamental analysis.

Use cases

Keep in mind that we are looking for value when we do a fundamental analysis of a cryptocurrency.

A good way to measure the future growth of a project is to take a look at its use cases.

You need to have a basic understanding of how blockchain technology works and some sense of how it’s being used by people.

Here are some important factors to consider when analyzing the usability of a cryptocurrency coin:

  1. Ages
  2. Geographics
  3. Sector
  4. Problem solving

It is important to understand which age group will benefit from using this new technology, whether it’s an app or something else.

Depending on the age you can make some accurate predictions regarding how popular the coin might be.

For example, young people will find games and other internet applications more attractive while older people might look for a financial tool or similar that will help with future savings.

Geographics matters as well because some countries are heavily underdeveloped when it comes to internet technology.

Let’s say that you analyze a cryptocurrency and the targeted area is a poor developing country, you might not get the same recognition as it would in a well-established country, even though it be helpful for this particular country.

The problem-solving part is very interesting because here you will get very good information on what the team behind the project is trying to achieve.

The level of the success of the project is directly correlated to how good they are at solving a current problem that has not yet been solved.

Thanks to blockchain technology there is a lot of room for improvement and you could easily agree that new groundbreaking systems or ideas will have a great impact on the future use cases, and therefore also the price of the coin.

Adoption

When you analyze a new cryptocurrency project it is of most importance that you figure out the level of adoption the project has.

Why is adoption important when analyzing cryptocurrencies?

The easy answer is that you don’t want to put your money into a project that has just started without any support at all.

This would be gambling and that is a bad way of doing a full analysis of a cryptocurrency.

The more adoption a project has, the more capital will be connected, and the brighter the future is.

There are several ways to find out how far the project has come and how many people are using the technology, here are some:

  1. Google Trends is a good way of seing how often the project or coin name has been searched.
  2. Check the technical chart to see how much money has been invested in the actual coin or token.
  3. Visit the website of the project to see if they write how many people have joined so far.
  4. Go to the Telegram/Discord group and see how big the community is.
  5. How many downloads have been made if it is an application.
  6. Google how many users the project has at the moment and compare with the other data.

These are super simple steps that any crypto investor can do and it doesn’t take more than a few hours to get a good picture of the token.

Without knowing the actual adoption of a crypto project there is no way of knowing how far they’ve come.

It will tell you how many other investors believe in the project, the more the merrier.

When learning how to analyze cryptocurrency, the adoption step is something that cannot be skipped.

Money Balance

How do you analyze the money balance of a cryptocurrency project, and why?

I will break down why this is a make-it-or-break-it factor when I analyze any crypto project.

This is one of the most crucial parts of how to analyze cryptocurrencies before investing real money.

If the company behind the new project doesn’t have enough funds to proceed through a long development, tough times, and sometimes bear markets, it will never reach the success it’s looking for.

Always check the money balance of every project before you even think about investing a penny.

Here is how to you it!

This data will not be available on the main website or Coinmarketcap so you will have to apply for some detective work on your own.

Visit the Telegram/Discord channel of the project and look for one of the founders.

The founders are usually very easy to find and they are always happy to answer questions from anyone interested.

Simply start a private message and say that you are interested in investing and ask something like:

  • Will the project be able to handle a bear market money wise?
  • For how long will the project funds last?
  • Is the project earning money at the moment?
  • Will you take on further investments in the form of another seed round?

Think about that the founders will never give you the exact bank statements of the company and they will never tell you exactly how much money they are working with.

However, these questions will let them answer in a way that will tell you if they are in a good position money-wise.

If you feel that the answers you get are positive you can make the judgment that they are in a good position to handle some negative turns and that is a very positive sign for the future of the project.

I’ve personally made this interview with most of the owners in the projects that have been a little bit smaller where it’s difficult to tell if they have enough money to keep going.

All of my investments in which the founders have described a healthy bankroll have been successful so far.

Google trends

How do you use google trends when analyzing cryptocurrencies?

This is a very basic cryptocurrency research strategy.

Simply visit google trends and search for the project name or the cryptocurrency (they are usually the same).

In the google trends result you will see the global searches for the coin and it will give you some indications on where it’s popular and how which geographics it’s spreading to.

Here is a google trends analysis of the project Synthetix:

cryptocurrency analysis on google trends

Here we can see that Singapore, Australia, Netherlands, Austria, and Norway are the top searches for this coin.

We can also see that it has started to pick up in popularity since the summer of 2019 with an increase in searches in early 2021.

This is vital information that we can use to our advantage when analyzing cryptocurrencies before we invest money.

Google trends will also show you some related topics and questions that can be of interest to you.

This is a great tool to use when learning how to analyze cryptocurrencies from scratch.

Technical analysis of tokens and crypto coin price

How do you analyze the price of cryptocurrencies?

The technical analysis of a cryptocurrency coin or token is just as important as the fundamental side.

The technicals will tell you many important things that the fundamentals cannot, such as:

  • Price prediction
  • Project interest
  • Profitability

But how do you actually make an accurate technical analysis of a cryptocurrency token or coin that will help you pick the best coin for your next investment?

Technical analysis is not always accurate and it’s not something you should rely on solely without considering other factors.

However, there are some good tricks you can use to your advantage when analyzing coins to better help you predict the future of the price.

Below I will briefly discuss three areas of a cryptocurrency project that technicals will help you analyze

Price prediciton

Technical analysis can help you predict prices in the cryptocurrency market if you combine it with your previous fundamental analysis.

You will get a better picture of how the future might look when you apply charts.

Remember, this is not about being right on every bet you make, it’s more about making many bets and win on the majority, or win big on a few good investments.

Here are 8 technical trading tips that have helped me in the past when choosing which coins to invest in:

  1. Pick a coin that has already started to increase in price and has a clear uptrend.
  2. Avoid dead coins that you hope will wake up, they probably won’t.
  3. Volume is a direct indication of interest from other traders and investors, high volume is always good.
  4. Compare your altcoin to the top 10 cryptocurrencies, if the trend is the same it’s a good sign.
  5. New highs are almost always a good sign of future price increase.
  6. Buy high and sell higher, this means that you buy cryptocurrencies that break out into new price ranges.
  7. Never buy a coin that is getting cheaper and cheaper, it’s declining for a good reason, stay away!
  8. Use a larger time-frame such as 12H or 1D to see the bigger picture, this is where the big money is being made.

Coins that have already started to increase in price with a healthy volume profile are great signs for future price predictions, don’t be afraid to get on the train after it has left the station.

Everyone wants to buy cheap penny cryptocurrencies but there are too many coins to choose between and therefore it’s almost impossible to pick the winners from nothing.

Instead, let the technical analysis tell you that the general public is interest in the coin. This can be seen when a coin starts increasing in price with an increase in volume.

A great example of good technical signs can be seen in the altcoin, Cardano:

technical anlysis of cardano

Here you have three points price increase and an increase in volume which tells you that the coin attracts traders and investors are willing to pay for higher prices.

Cardano went on after this to make another great price increase which was very profitable to all investors.

This is how technical analysis can help you predict the future of different cryptocurrency tokens.

It’s not always this clear but if you practice this, over time, you will be able to make good decisions based on your technical analysis.

If your coin passes this test it’s time to learn how to analyze cryptocurrency with the help of project interest.

Project interest

This is a very underestimated topic that the technical analysis of a cryptocurrency token will help you with tremendously.

When analyzing the project interest of a coin with the help of a chart you will find out a few things, such as:

  • How popular is the coin.
  • How much capital has been invested so far.
  • The timing of your next investment.
  • How fast are people getting invested.

Ok, so you have a coin and you want to know how many traders and investors are currently actively investing.

The first thing you should do is to take a look at the chart.

After an ICO a coin will have a starting price and a market cap which will of course change over time.

When a coin has been on the market for a while the market participants will give their votes in form of buying the coin and the price will in turn increase.

The faster a coin increases the more traders and investors it will attract simply because people are generally interested in things that are moving up.

It also helps you with your own timing when picking coins.

Some coins are just not ready and therefore you can make the judgment to leave out certain coins that don’t have a good technical profile.

The rate of investments is also an important aspect to analyze when you are looking at the chart of your altcoin.

If the price is increasing very fast from a period of nothing, something is going on and you should definitely apply more research because it might be something big.

Now, if your coin is doing well and it’s got some interest, you need to learn how to analyze a cryptocurrency to find out the profitability of the coin.

Profitability

How can technical analysis give you information about the profitability of the project?

It’s simple.

First, you need to know the price of the coin after the ICO.

Then take a look at how long the coin has been on the market.

The team behind the cryptocurrency will always get an initial sum of capital from the ICO which they will use over time for development, marketing, and other things related to the business that costs money.

If the cryptocurrency you are analyzing is below the initial ICO price two years after it’s been released on the market it’s not a good sign.

The money they received is probably starting to run out soon and since the coin has not increased in price, there is no new funding for the team who is holding at least 20-60% of their own token.

On the other hand, if the coin is up 5 times or even 20 times the price two years after the ICO you know that the team behind the project is sitting on some solid funds ready to be used for further development.

Remember to make this analysis together with the previous fundamental analysis.

Now, if your coin looks good both fundamentally and technically, it’s time to learn how to analyze cryptocurrency sentiment.

Cryptocurrency sentiment analysis

How to evaluate a cryptocurrency project with sentiment analysis?

When it comes to making a cryptocurrency sentiment analysis, this is best done with a few indicators that will tell you how the general public feels about the market.

Here are my top 4 indicators I like to use to judge the sentiment around cryptocurrency:

  • Fear & Greed index
  • Twitter
  • Telegram/Discord groups
  • News

Remember that a sentiment analysis will not predict the future of the cryptocurrency market, it should instead be used as a way of timing your investments.

If a market is very sour and on its way down, most participants will feel rather dull about the market and this is not a good time to start investing.

However, if the market is booming and cryptocurrency investors are buying on top of each other it signals a green light to get on board while prices are still low.

So, let’s take a look at how to analyze cryptocurrencies with the help of market sentiment.

Fear & Greed index

This is a rather unknown and unappreciated tool that will tell you how the average investor feels about the crypto market.

It’s shown on a graph with a scale from 1 – 100 where 1 is very fearful and 100 is extreme greed.

Let’s take a look at a live example from today and see how it measures:

fear and greed index screenshot

As we can see, the average market participant is extremely fearful at the moment and this is very understandable since the market has dropped roughly -51% in the past weeks.

This data is great to use to gather information about the current sentiment to judge whether or not it’s a good environment to start investing.

There is also a chart that gives you historical information that you can compare with today’s readings.

Here is the 1-year chart:

crypto fear and greed chart 1 year

Most investors were rather positive about the market from the middle of November to the middle of April when prices were increasing or staying high.

The period that followed was the beginning of the current downtrend we are all following.

So, what does the crypto fear and greed index tell us?

Or rather, what does it measure?

Before I show you the data I want to explain that the fear and greed index is run bad a bot that crawls the internet for information that it stores and later plots out on this graph we just saw.

The information comes from these data points:

  • Market volatility – The measure of flucuations in the cryptocurrency market.
  • Market volume – The current volume compared to a 30/90 days avarage.
  • Social Media – A measure of how often bitcoin and cryptocurrency are mentioned in social media.
  • Dominance – Measuring the market cap of bitcoin compared to other altcoins will show signs of fear or greed.
  • Google trends – This is used to see the increase or decrease in searches for bitcoin.

The best way to use the fear and greed index for cryptocurrency analysis is to use it as a timing tool.

If there is greed in the market it might signal that prices are going to continue to rise, and the opposite for a fearful market.

Twitter

This is a very underestimated way of doing cryptocurrency analysis to get an idea of the bigger picture and market sentiment.

When I research to see how the market is currently doing in terms of the sentiment I always check with some big crypto Twitter profiles to see what they have to say.

It doesn’t necessarily mean that these Twitter profiles are great traders, but they have a great following and they usually speak from their heart about how they feel about the market.

Take a look at this tweet from the 22nd of June this year when the market was pretty negative:

Ran Neuner tweet

This Twitter profile is not at all a reputable trader or investor, however, he has plenty of followers that read his tweets.

Also, if he is tweeting negative things about the crypto market, be sure that most other crypto fanatics are doing the same.

This tweet indicates that the market is not doing too well.

Here is another example.

Take a look at this positive tweet from the 21st of February when the market was pumping:

cryptosqueeze tweet

This is a very bullish tweet and it signals that something good is cooking the crypto markets, look for these tweets when you are doing your research.

Keep in mind that tweets are never predictive in nature, what they can do however is give you a very good idea of how the participants feel about the crypto market at the moment.

In that manner, it’s a great tool when learning how to analyze cryptocurrencies and bitcoin from a market perspective.

Telegram/Discord groups

Here is a no-brainer that all crypto investors should adopt straight away.

When doing a cryptocurrency analysis before investing real capital, you should always pay a visit to the Telegram or Discord group for some inputs.

Most of the time, people are rather positive about the project and usually clap each other’s backs to keep a good vibe in the chat room.

However, if you ask a couple of questions to the members you will quickly realize what is really going on.

Here are some great questions you can ask in any cryptocurrency Telegram/Discord group:

  1. What are the biggest positive news for the coin/token?
  2. What is the biggest negative impact on the project?
  3. How do you feel about the medium term future for the coin?
  4. Have you invested real money in the coin/token?
  5. Is this the only coin you have invest in?

The answers you get are not in any way meant to help you make better decisions about this specific coin and no answer will be trustworthy at all.

What we are looking for here is the sentiment of the group members.

Just by asking a few questions, you will quickly get the feeling of the members and you can pretty easily make a judgment of their sentiment.

This will help you out when looking for indicators about the current market sentiment.

Now, if everything seems good, it’s time to learn how to analyze cryptocurrency sentiment through the news.

News

News websites will always publish the daily stories that they think readers will click and read through.

With this said, they will also always report on the biggest headlines for the day or the week.

CoinTelegraph and Coindesk are two very reputable news sources where you can get accurate information on what’s happening right now.

How do you use the news to your advantage when doing a cryptocurrency analysis?

That’s dead simple.

Visit either CoinTelegraph or Coindesk and scroll through the front page for some juicy new stories.

I’m sure you will find some click-worthy articles posted today.

Go ahead and read a couple of these articles to get a feeling of how the news is translating the current market environment.

Take a look at this news article that was published on Coindesk on the 19th of July:

coindesk crypto news article

This is a rather negative view of the market and it seems like they think the cryptocurrency market is struggling at the moment.

Keep reading to see what you can find.

Here is another example.

This article was posted on CoinTelegraph 19 hours ago:

cointelegraph crypto news article

Same story here, not a very positive tone at all.

This tells us that the market might not be experiencing the best of days right now, seen from a sentiment perspective.

I recommend that you browse through some of the major news sites for high-quality articles to read.

When you read the articles, keep in mind that this is not professional trading or investment advice.

This is just a personal opinion from a news reporter, but they also have feelings about the market.

Now, if you are done with your sentiment analysis of cryptocurrencies, let’s dive into the topic of indicators for future price movements.

Best technical indicators for cryptocurrency price movements

Some technical indicators are better than others when it comes to predicting the future price movements of a coin.

However, no indicator should ever be used alone when assessing the future price.

Here are some of my favorite indicators to tell what direction a coin is moving:

  • Volume
  • Price Action
  • Trendlines

Out of all the indicators I’ve tested I think volume, price action, and trendlines have the most predictive nature.

This is my personal opinion and this is what has worked for me over the years of picking crypto investments.

However, it’s not to say that you should rule out all other indicators. Technical analysis is not direct science, it’s just as much an art form in itself.

Volume

So, why is volume such a good predictor of the future when it comes to analyzing coins or tokens?

For me, it feels like I can see behind the curtains when I’m analyzing the volume profile for any given coin.

Let me explain it differently.

Imagine that there were volume indicators and no way of knowing how many actually are buying the coin.

It would feel very tempting to know how much volume there was for any given coin and you would do anything to see how many investors have committed real money.

Now that volume is readily available for anyone who has a charting program, it’s sort of just one indicator among many others and is treated just like that.

I use volume differently and I really respect the number of traders going into a certain coin.

There is a way to use volume that makes it a great tool for any investor looking to exploit market information.

Here are my best tips for using the volume indicator when analyzing crypto:

  1. Focus on the extremes – When the market is trading at really high or low volume there is usually something going on and you should pay extra attention.
  2. Use volume together with price – Volume is nothing without the actual price. They both confirm each other and can not be used separately. There is a relationship here that every investor should learn over time.
  3. Volume is connected to emotions – When the market is over excited or very fearful you can almost always read this in the volume combined with price movements and there is usually follow through in the same direction. If you are good at reading market behavior, volume will be your confirmation.
  4. Volume equals contracts – You can easily tell if a correction is over by looking at the volume profile. If a current pullback in an uptrend is losing volume thorugh the dips it’s a great signal that the uptrend will continue soon due to the lack of sellers.
  5. Volume can increase without moving the price – If a market is experienced an extreme uptick in volume without a significant price move at lower prices you should keep the coin on your radar for further positive confirmation as there might be some big investors getting on the train. Remember that it’s still pretty difficult to hide physical bitcoin transactions from the order books.
  6. Volume is usually the precursos to turning big points – Larger traders usually sells before the market has started to fall when there are no more buyers. Larger traders usually buy large blocks at low prices when the last sellers have sold.
  7. Increased volume over time – A healthy sign is an increase in volume over a longer period of time for any coin. This means that it’s getting more traction and more adoption.

When learning how to analyze digital assets, knowing all aspects of research and volume is a great tool for your arsenal.

Here is an example of an altcoin with a great volume profile over the last 1,5 years, Algorand:

crypto analysis of algorand

The volume is clearly increasing over time and I will definitely keep this under my for further increase.

These are healthy signs for investors looking for a long-term bet but keep in mind that no technical analysis is 100% accurate.

Here are some good reasons for the volume to increase in any coin:

  • The coin is getting listed on more crypto exchanges
  • Good news have come out.
  • The team is good at promoting the project.
  • It’s actually a rock solid blockchain project!
  • Natural adoption thanks to cryptocurrency forums/Twitter.
  • The overall crypto market is in a positive trend.

Keep this in mind while analyzing your new token.

Now, let’s take a look at the next technical indicator for cryptocurrency analysis.

Price Action

What is price action and how can it help you predict the future of a cryptocurrency?

The term comes for the movements in the price of any tradable instruments and therefore it’s the action of the price or price action.

It can be used when technically analyzing the long-term chart trends of a cryptocurrency to judge whether the market is behaving positively or negatively.

Now, there are many ways of studying tokens through the use of price action, and today I’m going to give you some solid tips you can start using today when analyzing your favorite coin.

Some aspects of price action study require extra attention and are in my opinion better at predicting the price movement.

Here are 10 aspects of price action that I feel are more important:

  • Ackumulation areas – Certain parts of the chart are ackumulation areas where traders buy coins without moving the market which is a positive sign for future price predictions.
  • Important levels – Some levels on the chart attract more attention and therefore also contracts. Take note of important levels that might be broken or create support. Big levels that are broken can start very large up or down trends. Prior levels of significance often acts as short-term support and are great for adding to positions.
  • Higher highs & higher lows – This is an old one but it’s one of the most fundamental aspects that create a positive trend in the market. Higher highs and higher lows are only created when there are more optimistic investors controlling the market.
  • Low and high volatility – Volatility tells you a lof of information about the current market behavior. Before a big move the market is usually experiencing the lowest volatility in a long time and at the end of a larger trend the market most often become very irrational and high volatility arises.
  • Green periods and red periods – If you study a chart of any coin you will quicklu notice if the candlesticks are more often green than red. This is a direct sign och positive price development and should be noted. An area of more red candles indicates that the market has declined over a period of time and this is generally a negative sign.

To explain price action further with an investment perspective I’m going to show you a chart where we can use price action to help us predict the future of a cryptocurrency.

Take a look at this chart and all highlighted areas.

  • Blue = Low volatility, followed by a big move with follow through.
  • Red = High volatility, end of a larger move.
bitcoin price action analysis

When analyzing cryptocurrencies and bitcoin, there is a very distinct correlation between low and high volatility and larger price movements.

This also happens on smaller time-frames but for investment purposes, you can use this to your advantage when analyzing coins.

This doesn’t happen too often so make sure to take care of a good situation and remember that this is just one part of the research.

You should never count solely on price action.

It should be used together with a bigger research approach.

Trendlines

Technical trendlines in charts are bread and butter for many long-term investors in traditional financial markets and should definitely be applied to crypto charting as well.

What are trendlines in cryptocurrency charts and why are they so famous?

To begin explaining this concept I want to share a long-term chart of bitcoin to illustrate how different trendlines might look.

Take a look at this 12H chart of bitcoin:

trendline analysis of bitcoin chart

It’s quite obvious that trendlines exist and they are created in very creative ways.

A trendline can be built up of a few points on the chart that create a line basically.

Just looking at the trendlines will not help you as a beginner investor, you need to know why trendlines work and what they do.

Here are my top 5 reasons why trendlines actually work:

  1. Trenlines gather attention – A LOT of investors and traders respect trendlines that are created from basically nothing. When a trendlines is visible it is usually treated as a support or resistance. The fact that it’s visible is what’s creating all the attention around it, it’s a self fulfilling prophecy.
  2. Trenlines often gather contracts – Close to the important levels and inflections points that create trendlines are clustered with buy and sell contracts. Why is this? This happens because trendlines are so popular and traders decide whether to buy or sell next to the important levels, hence the cluster of contracts.
  3. Make it or break it points – Trendlines often create make it or break it points where it’s up to market participants to protect an area in the price or shoot right through it. Both aspects are predictive in nature where a break can signal a turning point in a trend and when a level is held it can signal that the trend is going to continue.
  4. Trendlines create big break outs – It’s no surprise that trendlines create a lot of built up tension in the market together with contracts that are traded around these levels. Once a trendline is broker it can create a cascading effect where the market shoots in one direction and creates either a short-term trend or a long-term trend.
  5. Trendlines provides safety – More often than not, trendlines can be used as great support for adding to current positions when the market is in a strong uptrend. It often takes a few tries to break an existing strong trendline.

The chapter on the technical analysis of cryptocurrencies has come to an end.

If your chosen coin passed these researched points it’s time to move over to the bigger picture.

Let’s take a look at how to read analyze the trend of the crypto market in itself.

How to analyze the trend of the cryptocurrency market

How do you analyze cryptocurrency trends and how is it possible to judge the whole cryptocurrency market at once?

No matter how much you like a project, the general trend of the cryptocurrency market has to be positive for your altcoin or token to start trending upwards.

You need to know if it’s time to buy or time to sell to be able to make real money.

Here are 5 easy data points to tell if the trend of the cryptocurrency market is positive or negative:

  • Price charts
  • Fear & Greed index
  • Bitcoin short ratio
  • News
  • Google trends

Remember to combine your full research to get the best results.

Only looking at the large trends of the cryptocurrency market will not give you enough information about your favorite coin.

However, it is a vital part of the full analysis before investing.

Price charts

You want to know how the market is doing right now and the best way to start your research is to look at the price charts.

Start with bitcoin and work your way down through the top 20 coins.

This will give you are a very rough estimate of the largest cryptocurrencies on the market and this will tell you the story of the crypto market as a whole.

You want to look for three things:

  • Positive trends – Unless the top 20 coins are in an upward trend you should not commit any capital right now. It’s a bad sign that the biggest coins on the market are either sideways or moving down.
  • High volume – A positive market is usually followed by higher volume in general. Combine this with the positive trend and you have increased your probability of success.
  • Correlation – The market moves in tandem very often and this is a very naive behavior. You want to see the top 20 coins moving upwards more or less simoultaneously for the best results.

If all of these three aspects of the chart analysis look good it’s time to move on to the next step.

Fear & Greed index

How can the fear and greed index help me analyze the trend of the cryptocurrency market?

We are coming back to the fear and greed index again and for a good reason.

When trying to figure out if the market is bullish or bearish, it pays off to take a look at the index to see how the participants feel overall.

Here are two important readings you should look for:

  1. Reading above 50
  2. Several weeks of readings above 50

You want to see a reading above 50 at least to feel comfortable with the trend and later on investing money.

The reading should also have stayed above 50 for some time to further cement the positive sentiment.

Bitcoin short ratio

What is the bitcoin short ratio and how do you use it?

This ratio tells you how many traders are shorting bitcoin at the moment.

So, why do you want to know this information before investing?

There are two main aspects to know about the bitcoin short ratio:

  • It can tell you how investors and traders feel about the whole crypto market right now.
  • You will get a hint of where most of the contracts are and therefore you can tell how investors feel.

Let’s take a look at a live example from today’s readings of the bitcoin short ratio to see what it says.

bitcoin short ratio analysis

Today we can clearly see that the readings have come down from a very choppy period.

The past weeks have been pretty volatile and this has scared many investors to the point where they have started shorting the market.

However, now it looks like the market has calmed down a little bit and the reading looks much better for a continuation upwards.

Keep in mind that this is not an analysis you want to trust on its own.

It’s one part of the whole process so make sure you do all the necessary homework together with this before investing.

News

We are coming back to the news again because it’s such a vital part of analyzing the market trends.

The news will tell you the biggest stories of today and sometimes up-and-coming news events.

To make the most out of news I have two important tips:

  1. Follow the news – If you simply check the news once per week or once per month to see some interesting headlines you will not be able to take note of any changes. I suggest that you pick one or two good news outlets and browse through the headlines once daily.
  2. Don’t take it too seriously – News are to be taken with a grain of salt. Most of the articles are click baits to catch your attention and reporters are magicians at writing compelling stories. So, when. you read the news remember not to be fooled by the excitement.

Now, if you like what you see in the news you have gained some information about the market trends.

Keep this in mind as you make your last assessment to analyze the crypto landscape.

Google trends

Google trends are coming back as a very helpful tool.

Now, how do you use google trends to figure out the overall trend of the cryptocurrency market?

It’s easy and here are my two best searches:

  • Buy Bitcoin – This search will directly tell you the amount of searches for the biggest money term of cryptocurrency. When this one spikes you can rest assured that the market is in a good position for future movements.
  • Convert crypto to cash – This one will tell you if the market participants are leaving the cryptocurrency space for real hard cash. A high reading of this might signal that the market is topping out. If the readings are low you know that the current participants are still in the game.

These searches will easily tell everything you need to know about the general cryptocurrency trends.

You can make the same searches for a specific coin if you are looking for more detailed information.

Congrats!

You have finished the whole “how to analyze cryptocurrency before investing” guide for beginners.

Now, what’s left to do is to get started, pick your favorite coins, and do a proper analysis.

In the last chapter of this guide, I’ve written a short description of how to get started with your crypto investments after analyzing.

How to get started with crypto investments after analyzing

There are only a few steps to do before you can make your first investment into the cryptocurrency space.

The most important thing is to keep things simple. Don’t overdo the analysis.

Follow these steps below and don’t waste time over-analyzing cryptocurrency projects.

Here are all the steps you need to take before getting started with crypto investing:

Keep in mind when choosing a cryptocurrency exchange that all of your coins might not be on one specific exchange, you might have to register on several.

Below is a quick guide on how to choose a group of coins and also how to pick the right exchanges for these projects.

Choose a group of coins

It’s important not to get frustrated when searching for new coins to invest in as nowadays there are cryptocurrency exchanges with a lot of coins.

There are literally tens of thousands of coins out on the market and it might seem very difficult to pick just a couple.

Here are some guidelines:

  • Start with some coins that you already know.
  • Don’t pick more than 10 coins to begin with.
  • Pick both cheap and expensive coins to spread out your portfolio.
  • Don’t spend more than a couple of hours on each project.
  • As soon as you find information or data that you don’t like, leave the coin and pick another one.

It’s important not to get stuck on a coin for too long.

Also, if the information you find doesn’t look good, leave the coin and research something else. Don’t waste your time on bad projects.

I would not recommend more than 10 coins in your portfolio at the same time since it can be hard to keep up.

Find a cryptocurrency exchange that fits

Which cryptocurrency exchange is best for investing in coins?

This depends on the coin you are looking at and also where in the world you are located.

Below is a list of recommended cryptocurrency exchanges and investment sites in different GEOs.

Click each item to go to the review to read more about each exchange.

Take your time to read through the full review for each exchange you choose.

Here you will find the cheapest ways to buy bitcoin, buy altcoins, and invest in other cryptocurrencies. Among these sites, you will also find the best coin swap sites on the market.

They all have very different features and it pays to make a little research to find a good match.

Conclusion

In this beginner crypto guide: How to analyze cryptocurrency before investing.

Learn more about how to do fundamental analysis, sentiment analysis, technical analysis, use the best indicators for cryptocurrency, and how to read the trend of the whole cryptocurrency market.

After reading this guide you will be able to make a more informed investment decision when picking new coins.

There are plenty of tips and tricks that you’ve never heard about before so take your time to read through the whole guide or go to a specific part of the guide that you find interesting.

If you want to follow up on this guide I highly suggest that you read through our guide on how to read cryptocurrency charts.

FAQs

You need to have a concrete investment strategy to

Analyzing coins are rather easy and all it takes is some basic information to get started. This beginner guide will cover everything you need to know to get started.

In my opinion, the three best indicators are Volume, Price Action, and Trendlines. They do a great job of assessing the market environment and are somewhat predictive in nature.