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Understanding cryptocurrency market data

Cryptocurrency market data is key to understanding the direction, sentiment and reason behind why things may move up or down in price

The cryptocurrency market can be daunting to newcomers. There is a plethora of data, charts, coins and tokens to get to grips with. Here is a guide to unwind the complexities of market data, and how it can be used to a trader or investor’s advantage.

Utilising data is key to ensuring long-term profitability. One of the benefits of the blockchain is that all data is public. Anyone can go and see when a transaction was sent and the value of it.

Market data platforms like Coin Rivet gives users an easy-to-understand way of demystifying this data. The first, and arguably most important, metric is “volume”.

Market volume measures how much capital has been traded on a specific trading pair over a pre-defined amount of time. For example, if the 24-hour trading volume for Bitcoin is $30 billion, this means that $30 billion has been traded across all cryptocurrency exchanges over the past 24-hours.

Volume

When volume has a significant uptick, this indicates that a recent move in terms of price action has been executed with conviction, as traders are putting down more capital.

If a move to the upside coincides with dwindling volume, this typically means that the price action should not be trusted. It indicates that the price movement may be caused by people closing positions as opposed to opening up new positions.

Market cap

The market capitalisation is a term used to calculate the relative worth of a specific asset. In terms of cryptocurrency, a market cap is the sum of the circulating supply multiplied by the current price. For example, if Bitcoin is valued at $60,000 with a circulating supply of 18,830,000, this means that its market cap would be $1,129,800,000,000.

Judging an asset’s market cap is more important than examining price as, while Bitcoin only has 18.83 million coins, tokens like Shiba Inu or Dogecoin have billions – if not trillions – of coins in circulation, meaning that it is almost impossible for the it to surpass $1.00 in price.

Open interest and leverage ratio

Open interest is a metric that assesses how much capital is currently open in leveraged positions on derivatives exchanges. If leverage reaches a point where it is unsustainable, it is often ‘flushed’ resulting in a short or long squeeze that causes price to go against trend in the other direction.

Twitter sentiment

Twitter sentiment data is closely related to the ‘fear and greed index’. It scrapes social media to work out whether the masses are ‘bullish’ or ‘bearish’ on a particular asset. The fear and greed index uses Twitter sentiment amongst its algorithm to assess whether the market is fearful or greedy. Both of these are known as ‘counter indicators’. When the masses are bullish or greedy, it often indicates that it is a time to sell or short, and when the masses are fearful it is usually a time to buy.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.