The hard part when it comes to assessing the bitcoin price

The hard part when it comes to assessing the bitcoin price

New York Times Economist, Paul Krugman, always binds bitcoin. Why do you trade such a volatile asset, he asks if he lacks basic qualities?
So the bitcoin has just lost half the value. Where is it now in relation to its fundamental value? Hard to say, because there is no such thing. Moreover, the whole situation seems to be a simple bubble.

Let’s get some peace. How important is the fundamental value when investing? When you work on the stock market, you have access to a wide range of company data – revenue growth, price / earnings ratio, and so on.

Experienced traders will confirm that in some cases the fundamental value may be very useful, but not enough to convince you whether to buy or not.

A few months ago, a trader asked the quant community about the Quantopian platform’s investment algorithm to build a successful trading strategy using only the fundamental value. The results were disappointing.

The strategy did not perform well and was under the S & P 500 with 155%, which made moderators give the next payback:

Strategies based only on the fundamental value tend to take into account a long-term forecast horizon. Their rare nature makes them hard to evaluate, because you have to wait years in a row to develop enough sample points.

In other words, the fundamental values ​​are good, and they are certainly good strategies based on them. Many professional traders see beyond them when they make trading decisions. Therefore, the absence of core values ​​on the crypto market should not in itself be decisive.

Price data

Another way to evaluate the risks of assets and possible rewards is to look at historical cost data. We can do this with actions, but also with cryptocurrency such as bitcoin and ethereum.

A key term when it comes to price evaluation is the Sharpe report. This is a return on equity versus volatility. The goal is to maximize this value. A good Sharpe report should usually be over 1.0.

Because all top cryptocurrency have had such massive profits, the Sharpe ratio is generally above 1.0. However, some are more volatile than others. Using the Sharpe report as a critical point, we can determine what is the best blend in the crypto portfolio for the ideal volatility level.

It resembles the way that portfolio managers decide how to divide their bucket portfolio – local equity, foreign equity, and bonds. The good mix minimizes volatility to get the desired profit.

If you’re following GoanaButcoin tomorrow, you’ll find more information on how to manage the crypto portfolio by Enigma project data.

The margin of efficiency for the volatility of crypto assets

There are some gaps in this technique. One on hand, cryptocurrency do not have a very long history. That means the data may be inconsistent.

It can also be seen that all cripto assets are very correlated with each other, something that can be seen very well after the recent fall in the market. Because of the high correlation, it is difficult to give advice about a certain allocation of assets.

Alternative methods for cryptocurrency evaluation

Crypto space leaders are seeking alternative methods to evaluate the fundamental value of cryptocurrency.

Fred Wilson, a prominent investor on the cripto market, says:

You have to have some fundamental theories of value and apply them rigorously.

Some of the current fundamental values ​​proposed for cripto assets are:

  • The ratio between value and transaction. It measures the volume traded as an indicator for how active the use is.
  • Active Daily Users (Daily Active Dates or DAA) – How Many Users Use Monthly Cryptos?
  • Economic data on demand and supply, applied to crypto assets through monetary theories

Qualitative analyzes

Finally, when we think of bitter-old cryptocurrency or newer versions like newly-born ICOs and novices, we always have a qualitative analysis. This means different things for different people.

Some of the crypto traders say they have some key features to look at. These include:

  • Studying the team behind the project and assessing them – how good they are in solving a particular problem.
  • Study of the white work behind the chip or crypto asset. Does the proposed problem and its resolution have a problem?
  • How other blockchain enthusiasts talk about the project, including cripto experts.

Last but not least, these ideas are not armored. Some of the influential people in the crypto market have begun to offer “white paper writing services” for companies. There are also many analysts who do nothing but promote a project, sometimes unreasonable.

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