Cryptocurrencies are a highly volatile value. Therefore, it is difficult to define the perfect moment to invest in them.
However, it is easy to spot specific cycles that keep happening again and time again. There are some signs that can help us when making decisions.
- The degree of adoption by users.
- Innovation and development.
- Mayer's multiple.
- The values of the SOPR (Spent Output Profit Ratio).
- The MVRV (Market-Value-to-Realized-Value) ratio.
- The liquidity of a Cryptocurrency.
- Technical trading indicators.
Sign 1: The Degree of Adoption
Cryptocurrencies' worth changes according on user commitment, supply, and demand.
The more speculation there is for a Cryptocurrency, the lower the user adoption tends to be.
For example, if a Cryptocurrency today costs 1 dollar, tomorrow 5 and the day after tomorrow 0.5; it will not have much credibility in the eyes of users.
Signal 2: Innovation and Development
Cryptocurrencies have become a disruptive innovation for society because they define a new paradigm in the relations of economic agents: they ensure electronic transactions without the need for an authority to control them.
If a Cryptocurrency is not in continuous development, it risks being forgotten.
What is the innovation behind Bitcoin?
Bitcoin allows transactions in real time. In as little as 20 minutes, a transfer can be finished.
Signal 3: Multiple of Mayer
It serves as an indication to know if a token is in a bearish phase when its value is less than 1.
The Mayer multiple is the multiple of the current price of Bitcoin over the 200-day moving average.
What's more, past simulations confirmed that the best long-term result was achieved by accumulating Bitcoin as long as the Mayer Multiple was below 2.4.
Signal 4: SOPR Values
It reflects the degree of gains and losses made by all the coins that move in the chain.
This indicator tells us when important changes occur in the price thanks to the data that is loaded on the blockchain.
In short, it's the realized value (USD) divided by the value at creation (USD) of the output:
Price sold / Price paid.
Historically, the indicator has reached values between 0.9 and 1.35. A value of one means that the market is in a neutral state.
Sign 5: The MVRV Ratio
Measures the relationship between an asset's market capitalization and its realized value.
It is a metric used to analyze long-term cycles, identifying how much the Bitcoin market is benefiting relative to the volume of crypto assets traded.
Upper limit: 3.7. If the MVRV moves above this level, it indicates overvalued Bitcoin.
Lower limit: 1. If the MVRV drops below this mark, Bitcoin is undervalued.
The MVRV is an excellent indicator of highs and lows, mainly for Bitcoin. MVRV spikes indicate that the market is at its maximum, while dips occur when the market is in an accumulation period.
Sign 6: Liquidity
In Cryptocurrency terms, liquidity is the ability of a currency to be easily converted into cash or other currencies. In such a way that the easier it is to convert an asset into money, it is said that it is more liquid.
Cryptocurrencies that have low liquidity are going to have a big difference between supply and demand.
Be careful, it will cost us more to buy them.
Signal 7: Technical Trading
Traders should not clutter every chart with all available indicators.
Using too many indicators will only hinder the process and create confusion.
There is no perfect set of indicators that give better results than others, it is just a matter of preference and practice.
Conclusion
When it comes to finding and identifying Cryptocurrency signals, there are many patterns that can help you.
Like everything in life, it depends on your criteria and your preferences. In general, the most effective (from my point of view) will be to take into account the price action, because it is what will confirm that that trend change has already occurred.
Trading will greatly benefit from your understanding of how to interpret bitcoin charts. It will provide you with an idea on when to enter or exit a trade, increasing your profitability.
However, each one has its keys to dominate the world of trading. Remember to invest wisely.
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