Early momentum in Q1 is indicating a surge in cryptocurrency interest. While the crypto-spring may be upon us, much has yet to be determined.
Gauging whether this potential bull run is sustainable (or not) depends on looking at long term factors that affect the cryptocurrency market. Gaining insights about demand forecasting can help you gain and edge. Here’s what most investors overlook. Here are 3 hidden insights about demand forecasting – for non-technical investors.
Historical analysis VS future prediction
When it comes to valuation methodology, there are multiple sides to the coin. While no method is perfect, if we look at the current tools and popular techniques for Technical Analysis (TA) we see that most are based on historical sales data.
Many look at the cryptocurrency or stock market and turn to Moving Average Convergence Divergence (MACD), Bollinger Bands, and other TA methods for insight. The common thought is often “well this is something that most financial analysts or traders would use, and there is value to this, so therefore it must be valuable to use in the cryptocurrency market.”
When applied to long term, value investing in the cryptocurrency space – this couldn’t be further from the truth. Here’s why:
There is a difference between the cryptocurrency market and the stock market. Aside from the wild volatility and huge spread on yearly highs and lows, the cryptocurrency market requires investing in a tokenized version of some future potential (payment, a network, infrastructure, etc.) that is completely unknown at the current moment.
Unfortunately there are no historical data points. There are no historical revenue numbers, or financial statements. Trading volume for many cryptocurrencies is non-existant or heavily manipulated. The market potential is difficult (at best) to predict.
Technical Analysis does have a place in trading. But sophisticated investors leverage as much big data as possible to look forward rather than backward.
Big data looking forward
The future use, or potential value of the token you’re considering investing in has no historical context for which you can predict future value.
And yet many try to look for historical significance to forecast demand.
While sentiment can move short and long term potential in the traditional sense of market analysis, popularity is extremely important in the cryptocurrency space – and can help derive improved indicators of forecasting demand.
Unfortunately gaining insight requires leveraging big picture thinking, or big data to help gain a clearer picture of what’s to come.
Here are some of the critical data points to consider:
- The change or growth in users on a platform over time
- How many active wallets exist
- Considering real vs fake transactions
- Understanding network activity and patterns
- Looking at contribution to code
- Growth of community and general sentiment via common discussion channels
all help to paint a clearer picture of where your target cryptocurrency may be headed.
It is not unlike angel or venture capital investing really – you must understand the fundamentals of company valuation based on very broad strokes about the market. Leveraging big data where possible – with tools like Google Trends, Tradingview, or Santiment, can help you create a clearer picture of what that future may look like.
Popularization based demand, but this time it’s different
This time is different. This time the potential bull run for cryptocurrency is unlike any of the previous market cycles. But understanding this inflection point, and why things are different – is a missing piece to becoming more accurate with demand forecasting.
There’s quite a bit of empirical evidence to say that this time, the potential for cryptocurrency adoption and mainstream growth, is not just “smoke and mirrors.”
Yes, we know that the cryptocurrency market is cyclical. This is a commonality. But what’s been very different this time is the way in which the cycles have built upon each other – each one leading to more and more potential for demand.
First it was about the technology and the potential of the technology. Next came the infrastructure to facilitate payments. Then came the opening up of retail investment. Early adopters jumped on this opportunity. Next was the adoption of institutional financial instruments such as futures. Institutional money started to pour in.
And soon, with more growth on the technology side, we will see mainstream companies like Walmart, Facebook, and Twitter opening up options for payment via cryptocurrency.
You cannot predict this type of growth or future value based on Technical Analysis. Getting a more accurate understanding of future demand requires that you sift through the mounds of data (whitepapers, comments, message boards, community groups, etc.) to get a general feel for where the market is going.
It’s ultimately a question of how you decide to look at the market. Originally, most analysis was designed to look backward, to use historical data to predict what will happen in the future.
But when you get to current data something interesting happens. You monitor something that is constantly changing and can’t be controlled or predicted. It shifts the lens by which you look at the future potential of the market.
Understanding the clear difference between technical analysis and future analysis based on sentiment, using big data to hone in on popularization, and leveraging the cascading effects of the cryptocurrency cycles are just a few of the insights that can help give you an edge in the market, and help facilitate your movement into demand forecasting.
About the author: Kai Charette is the CEO of Alttra Solutions. Learn more by visiting his author page.