It is not easy to predict in which direction the crypto money prices will move, and for this reason, there are indicators in the technical analysis of crypto money. Cryptocurrency indicators are tools combined with technical analysis that can help traders more accurately predict the price movement of cryptocurrencies. Technical analysis relies on historical data to provide mathematical models of possible price movements, and these patterns are converted into indicators. The data in the formulas are then plotted on a chart, which is then placed next to or on top of a trading chart, thus helping traders make decisions.
Although cryptocurrency indicators cannot predict price movements with 100% accuracy, their reasoning is that price movements have momentum and the more price momentum we see in a particular direction, the more difficult it is to stop it. That’s why indicators use charts and formulas to give buyers and sellers a clearer picture of what to do next.
Without further ado, let’s start talking about the best cryptocurrency indicators for cryptocurrency investors.
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Market Value – Realized Value (MVRV)
MVRV is used to assess whether Bitcoin
is overvalued or undervalued relative to its “fair value.” The tops and lows of the market are determined. It refers to the discount in price.
Market Cap (Market Cap, Network Value): It is found by multiplying the current price of Bitcoin by the number of Bitcoins in circulation.
Realized Cap: It receives the last sending price of each Bitcoin in inter-wallet transfers. All these prices are summed up and averaged is obtained. This average price is then multiplied by the total number of coins in circulation. Realized Value removes the short-term market sentiment inherent in the Market Cap metric. Therefore, it can be seen as a more ‘real’ long-term measure of the coin’s value where the Market Cap is moving up and down while adhering to the current market sentiment.
To be explained with an example from Glassnode data; On November 7, 2020, the LTC/USD MVRV Z-Score dropped 151.7% from -0.063 to -0.159 in the last 24 hours. Subsequently, a 7% pullback was observed in the market.
Z-score: It is a standard deviation test that reveals the extremes in the data between the market value and the actual value.
It is calculated by the formula [(Market Value-Actual Value)/Market Value].
If the result > is 1, it indicates that it is sold at a higher limit than the market price. It corresponds to the buying pressure in prices.
If the result < is 1, it indicates that it is sold at a lower limit than the market price. In this case, it shows that prices are signaling a pullback.
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Network Value (Market Cap)
It is the concept that expresses the material market value of coins. It specifies the market value, not the amount circulated
in the blockchain
. To illustrate this with an example, let’s say the supply of X currency is 1000 units. Let’s assume that this currency is sold to 1000 people for 5 TL each. Then the market cap value will be 5,000 TL. When one of the investors sells one of them at 20 TL on the A stock exchange, the market cap will increase to 20,000 TL because the new price will be 20 TL. The increasing demand for coins also increases the Market Cap.
Realized Price: The realized price is obtained by dividing the actual market value by the total amount of coins produced. It eliminates short-term market sentiment, providing a more ‘real’ long-term measure of the coin’s value.
Hash Rate: It refers to the speed of operation of any mining device. Since a miner has to calculate more predictions per second than other miners, the coin mining difficulty is raised. The hash rate also increases because it will work faster.
If we consider the effect on coin prices, the increase in coin prices causes an increase in the hash rate. As the price rises, miners will want to produce more. There is a correlation between coin prices and hash rate. If miners turn off their devices due to energy problems, it causes a withdrawal in the hash rate. A declining number of miners can reduce selling pressure in the market. Therefore, the price can be positively affected.
Gas Price: Gas refers to the fee that allows miners to successfully transact in Ethereum. All transactions on the Ethereum network cost a certain amount of gas, depending on the current demand for gas and the size and speed of the contract being executed. If a sufficient amount of gas is not used when making a transaction, the transactions are not transmitted to the other party. It is used to pay miners. Basically, gas fees are paid in Ether (ETH), Ethereum’s native currency. Gas prices are indicated in Gwei, which is itself a value of ETH. Gas fees help keep the Ethereum network secure. By charging a fee for each calculation performed on the network, it prevents actors from spamming the network.
The increase in the demand for Ethereum and ERC-20-based tokens on the Ethereum Blockchain and the increase in network density cause gas fees to rise. With Ethereum 2.0, the fact that the Fragment Chains will work fast enough will both reduce network density and prevent an increase in gas fees.
Gas Limit: Gas Limit refers to the maximum unit of Gas you are willing to spend on a transaction. In order to process a transaction in Ethereum, the sender must specify a Gas limit before sending the transaction to the network. The gas limit also ensures decentralization in the network. If the gas limit is too low and close to exhaustion, in real terms nothing is assumed to have happened and the transaction returns to the way it was at the beginning. However, since the miners incur computational costs, the sender will have to make their payments and the transaction movement will be stopped.
Miners are limited to an estimated block gas limit of up to 6,700,000. The simplest operation to perform requires a minimum of 21,000 Gas. Having a gas Limit that is too high is not logical and profitable. It makes the most sense to set it to the Gas limit, which is one click more than the amount of Gas required for a transaction to be performed.
With Ethereum 2.0, the transaction speed will increase as the transition from Proof of Work to Proof of Stake will be achieved. With the decrease in network density, withdrawals will also be observed at the Gas border.
Reserve Risk: Reserve Risk allows us to visualize the trust among long-term (
HODL
) coin holders relative to the price of the coin at a given moment. Reserve Risk is calculated by dividing the price (in USD) by HODL Bank (the opportunity cost of holding an asset).
When market confidence is high and the price is low, the potential for the amount (reward) to be earned against the risk is higher for the investor (Reserve Risk is low). When market confidence is low and the price is high, the potential for the investor to earn the amount (reward) against the risk is lower (Reserve Risk is high).
Mining Difficulty: If we explain through Bitcoin; Bitcoin mining basically means creating a new block and getting a reward for it. The reward for each block mined is 6.25 BTC. However, the more computers race to solve the math problem, the faster the blocks will be discovered. As the mining difficulty increases, the amount of work required to create a new block and earn the reward increases.
A Bitcoin
halving
occurs every 4 years. During each halving period, the Mining rewards are halved and the mining difficulty doubles. The increase in energy consumed also causes withdrawals in the number of miners. A declining number of miners can reduce selling pressure in the market. Therefore, the price can be positively affected.
Mining Revenue: In order to profit from cryptocurrency mining, it is necessary to have sufficient hardware and infrastructure, space to house and cool the devices, and technical knowledge to operate the devices. In regions with low energy costs, mining revenue is more likely because miner costs are also minimal. Especially when doing Proof-of-Work mining, it is important to note that revenues will decrease as the difficulty level increases. Especially in Bitcoin mining, the Halving period, which occurs every 4 years, is the best example of this. To maintain revenue in proof-of-work mining, it is necessary to regularly invest in hardware and renew devices with declining performance.
When mining revenue decreases, the number of miners also declines. It has a positive effect on prices.
To be explained with an example from Glassnode data; On November 3, 2020, Bitcoin miner revenue reached its highest level in four months. With the rise of Bitcoin to $ 14,000, the Bitcoin output of miners has increased by 40.3% in the last twenty-four hours. He shared that Bitcoin miners are monetizing Bitcoins by increasing their output.
