The Importance of Crypto Trend Analysis - What Makes a Crypto Hot?

Current realities of crypto trade and looking into the future of market developments, discussed by me - Viktor Kochetov, CEO at Kyrrex, a digital wallet and professional cryptocurrency trading platform.

The importance of trendwatching and analysis might seem obvious on the one hand. In reality, trends are not that easy to spot. Of course, trading requires gut feeling which is based on knowledge, skills and expertise. In this context, successful decision making, to a great extent, relies on the ability to detect an actual trend; this superpower is a combo of intuition and science.

In order to make money in financial markets a trader must have a clear idea of what a trend is, and even more necessarily, what is not. For instance, the price of bitcoin jumps up and down wildly within a few days. But, if we look at the bigger picture, these fluctuations might belong to an ongoing upward trend. More than that, even a consistent price decrease could also be a part of an uptrend. A lack of knowledge here can be confusing and lead to losses rather than profit.

Trend, is it you?

In a nutshell, a trend is a certain market direction. We are talking about three trend types — uptrend, downtrend and sideways trend. If things are pretty clear with uptrend and downtrend, sideways, aka horizontal or flat trend, means the market finds itself somewhere in between the two directions with no sharp jumps observed. Going with the trend flow minimizes the chances of facing false selling and buying signals. By the way: the primitive forms of trend analysis date back to the 18th century when Asian traders attempted to plot the cost of rice. Since then technologies have made the process more plain and accessible.

Today, traders apply three types of analysis: technical, fundamental and sentimental. Technical analysis implies the usage of historical activity for statistical trend detection. We mean crucial indicators such as trade volumes and price fluctuations. At the core of this analysis type is a philosophy that ‘it’s just a little bit of history repeating’. Fundamental analysis takes you away from the prices and numbers, as they are, and offers to analyze the factors driving those numbers. Here the philosophy is about cryptocurrency value being underestimated or overestimated; both scenarios lead to correction. Sentimental analysis wants much more than data; it emphasizes the importance of daily consumers, journalists and influencers.

Technical analysis is referred to as the most reliable. When this tool is handled responsibly and competently, it provides valuable insights on the current state of affairs in the market, and helps make judgment calls.

Technical trend analysis: Dow’s axioms

With the help of technical analysis you can assess the volatility of security. The assessment is fulfilled on the basis of Dow’s theory and its four axioms.

1. The market considers everything. The value of digital assets is made up of past, present and future, in terms of events, demand, price adjustments etc. Any changes within the passage of time matter a lot.

2. Price does not move chaotically. The movement of price follows a certain trend, either short-term or long-term.

3. Think of ‘what’, not ‘why’. In contrast to fundamental analysis, technical analysis considers the price movements much more significant that the factors that drive them. Technical analysts are charters.

4. History repeating itself. Particular circumstances are sure to evoke the same reactions from traders. In this case, the market sentiment follows patterns and can be predicted.

Dow’s theory, however, is not impeccable. It should be regarded as a set of principles that help a trader to keep the head cool and remove the emotional element.

What’s hot today

Nowadays the eyes of financial regulators are on Security Token Offerings or STOs, a sort of ally of ICO and IPO which is asset-based and regulated. The focus on STOs, and their pervasiveness, can do a lot for the market, specifically, attract large armies of institutionalized investors. You probably know the volumes of ICO scams — they are truly immense. In this context, STOs represent a worthy substitute to ICOs for a number of reasons: they are backed by investor benefits, shares, dividends; they are regulated by SEC; the number of STO platforms is limited.

Initial Exchange Offerings or IEOs are also a new black. Instead of distributing tokens to investor wallets they are distributed via an exchange. Right after IEO is complete, the traders receive a chance to trade tokens on an exchange in a more flexible, secure and trustworthy way.

In the eyes of the investors, IEO means reliability, and they can be sure the project is worth it when an exchange affirms its legitimacy.

Historically, the majority of crypto exchanges have been centralized, and centralization as a phenomenon that runs counter to the nature of cryptocurrency (not to mention the security risks). In view of this, decentralized exchanges are mushrooming using blockchain in their architecture. Since blockchain is the key to transparency, we are witnessing increased investments in technology.

The emergence of stable coins was dictated by instability and volatility issues. Stable coins are missioned to tackle these problems by becoming the first decentralized digital asset which is stable in both value and price. The perception of stable coins, though, is quite uneven: some think it to be the sought after solution, others think it lacks convenience. In any case, stable coins do not depend on financial institutions, and they work well for cryptocurrency loans.

What the future holds

In the years to come we should expect the consolidation of cryptocurrency market due to the withdrawal of illiquid crypto assets from turnover. Stabilization of the market will result in low-liquidity and unpromising crypto assets. In other words, the amount of cryptocurrency and tokens remaining in the market will be rather small, but the investor will know for sure that these assets will represent value. Regarding the infancy stage of the cryptocurrency domain, a large percentage of assets appeared on the way of ICO projects hype or grew out of the chase for a quick buck.

For institutional players there is no investment goal, as long as they do not understand the value of the offered asset. Without the significant support of large investors, most of the existing cryptocurrencies will sink into oblivion. The role of jurisdiction will grow, and there will be increased movements towards liquidity consolidation. The market is expected to become more stable and less volatile — there will be no rush, no hype and no reckless investments. A growing number of exchanges already realize the value of regulation. But it takes restructuring the entire architecture, working with database, accountability framework — it is a challenging task that will filter the market. Also, developments within the regulatory sphere will define the arrival of traditional finance experts in the crypto environment.

The architectural trends that are going to stay in the nearest future are high security requirements, high-quality selection of pairs of tokens and coins, high stability of the stock exchange, especially at peak moments of activity in the market. The corporate sector will increasingly demand personalized services. All these requirements are dictated by the market. Customers are becoming more demanding for a set of trading tools and services.

In order to meet the needs of customers in a timely way, and meet the basic requirements described above, the complex of exchange modules must undergo structural changes.

Earlier the structure looked like this:

As it can be seen from the graph, core system was the main processor and carrier of information. But over time, the structure is undergoing global change. The requirements for customer identification are increasing, analysis of trading tools is becoming more resource-intensive and more demanded by customers. And as a result, trading tools appear that are not required from the trader to constantly monitor the state of the market. As a result, we come to a more comprehensive and functionalized architecture.

The module “intelligent data service bus”, is the main router of information flow between information consumers and storage. The introduction of this module into the architecture, and the introduction of the DWH module (Data Warehouse) into the structure, essentially relieves the load from the “Core System” and allows the analytics module to receive online and historical information for analysis without restrictions. The second figure provides an idealized version of the exchange architecture, but there is always something to strive for.

So, as you can see there are a lot of things happening now and even more to expect in the following years. A trend is a trader’s friend — adherence to tendencies, dynamics and ups and downs will eventually help to be two steps ahead and make sound decisions. Obviously, fraudulent schemes will become more and more sophisticated, and it takes a lot of prudence not to fall victim. Keep your eyes open, your finger on the pulse and choose credible exchanges that have nothing to hide.