To help us determine value in any given market, be it the stock market, crypto market gold market or any other market, most analyst choose to go one of two routes. Technical analysis is one rout and fundamental analysis is the other.
Warren Buffet is perhaps best known for his deep understanding of intrinsic value. Warren belongs to the fundamental group. If he doesn't understand it he doesn't buy it. When it comes to determining whether a stock is selling at a good or bad price, Mr. Buffet relies on many concepts from his favorite book - The Intelligent Investor. In the book, there is much discussion about price to earnings (P/E) ratio as a tool for determining whether or not an asset is overvalued. If the stock's price is ~355 times the earnings per share for that same stock (e.g. Netflix) Benjamin Graham [the author of the book] would argue that if a storm were to hit the market, the value of such an asset would go skydiving. Looking a little deeper into this concept it makes perfect sense. A company whose stock price is $2 and earnings per year per share is $1 (representing a P/E ratio of 2) would likely remain mostly unaffected by a market crash because it would only take two years for each share to earn the $2 that the share costs. On the other hand, it would take a company like Netflix ~355 years to generate in earnings the value of the stock. Hence, stocks with higher P/E ratios are more prone to adverse price action in the event of a crisis.
The second group of analysts are more the cooks than the bakers. They don't see the value in digging into the spreadsheets because for them determining the right time to purchase a stock is more of an art than a science. This group calls themselves technical analysts. Rather than agonizing over income statements and P/E ratios, these cooks believes that the market can be best predicted by looking at trends as they can be seen on graphs and charts. Their argument is that the market absorbs information much quicker than we can imagine, and by the time a quarterly earnings report is released, the price has already adjusted to that information well before the information became public. This is why group B relies on techniques such as the graphing of simple and exponential moving averages (SMA, EMA) to identify trends in the market and foresee future events well before they become known to the public.
So which method is better applied to crypto currency? I would argue that the technical analysis field has much more to offer than the fundamental does. My argument is simple, where can you find a quarterly earnings report for Ethereum? What numbers can you use to determine the P/E ratio of Ripple?
Would you like to be able to see trends in the market before the price shoots up or down? If you want to familiarize yourself with the field of technical analysis and expand your toolkit for analyzing price movement, I would recommend reading a book by John J Murphy called Technical Analysis Of The Financial Markets. It is a relatively easy read and requires no knowledge of mathematics or sophisticated financial concepts. A PDF copy of the book can be found here:
Since the crypto markets are decentralized and not made up of corporations that publish quarterly earnings reports, it is only through the lens of technical analysis that you can learn to predict the price action in advance and make the big money investing in crypto.
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