Introduction to Fundamental Analysis.
One of the 3 pillars of Market Analysis is Fundamental Analysis.
In a market where assets are largely intangible and where there is little obvious fundamental data, value is determined by non-traditional metrics.
As research has shown, the value of cryptocurrency networks lies in the communities involved in those networks. Fundamental network usage data is therefore analysed to provide valid fundamentals.
Fundamental analysis has potential to direct the Decentia search engine to new areas of volatility, for subsequent analysis and trading.
Fundamental Analysis is the Basis
Fundamental Analysis tracks metrics such as trade volume / value, market capital ($Trillion) , Total value locked, number of new/active users etc.
Cryptocurrencies have network effects. A network effect is something that becomes more valuable as more users are added to the community.
In 2018, Timothy Peterson applied Metcalfe's law to Bitcoin and showed that Metcalfe's Law determined over 70% of the value of Bitcoin.
Metcalfe's Law has been used to characterise the growth of the Internet, World wide web, Social networking, and lately, Cryptocurrency networks.
CyberTrade financial instrument design includes a framework which includes 2 categories of indicators. directional indicators and current usage indicators.
Metcalfe's Law states that the value of a telecommunications network is proportional to the square of the number of connected users.
CyberTrade includes several categories of ratios to determine value, including current valuation ratios and long-term valuation ratios.
cybertrade
CyberTrade - Fundamental Analysis
Fundamental analysis of an intangible asset?
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During the 2010's, and the rise of social networks, Financial Analysts faced the problem of valuing companies with large and growing user bases but little or no income. The Analysts realised that the value of a network lay in the people involved in the network.
Since individual cryptocurrencies are, inherently computer networks, it makes sense to monitor their fundamentals such as the number of network users, the number and value of network transactions and the utility the network provides. CyberTrade's Decentia platform constantly monitors trading volume and value, plus other indicators, across multiple exchanges and blockchains, to be aware of fundamental market conditions.
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NVT Directional Indicator
The NVT ratio is the Network Valuation divided by the transaction Value flowing through the network.
The NVT Signal applies additional smoothing applied to the Transactions component.
The NVT signal is an indicator which is responsive enough to use as a trading indicator.
The NVT Signal is a rare and valuable example of a trading indicator which uses network data instead of price and volume data from an exchange.
Correlation Directional Indicator.
CDI shows whether the crypto assets are becoming more or less correlated.
Greater correlation generally means a bearish trend while less correlation means a more bullish trend.
Mining Cost Indicator.
Mining Cost [Blockchain] (Daily) - The average of fees generated for processing transactions on the blockchain.
Mining cost should not be confused with fees paid to miners for generating the next block of transactions on the blockchain.
If the fees are really low or really high, the indicator acts as an 'alert', to trigger further investigation.
Current Usage Indicators.
Unique Addresses (Daily) - A count of the number of daily unique users. The data is used as a relative indicator. If the unique addresses trend is increasing, that's bullish for crypto markets.
Transaction Value (Daily) - A count the estimated $(USD) transaction value daily. This is used as a relative indicator. If the amount is increasing, that's bullish for crypto markets.
Current Valuation Ratios.
Current ratios track current relative network value.
The NVT ratio is similar to a P/E ratio in equities markets and is a core valuation metric in crypto analysis.
The MVRV ratio is market value by realised value and is a more complex ratio than the NVT ratio.
Realised value tracks the trade price at which the last trade was executed.
NVT Ratio
- Undervalued is < 55 & Overvalued is > 75
MVRV ratio
- Undervalued is < 1.2 & Overvalued is > 3.2
Long-term Valuation Indicators.
These indicators track long-term relative network value.
The Mayer multiple calculates price against the 200-day moving average. This gives a ratio relative to time and past trading prices.
The P/BE ratio shows the value ratio of price to miners break-even cost. This gives a ratio of price relative to production cost.
Mayer Multiple
- Bullish is < 10. & Bearish is > 2.4
Mining P/BE ratio
- Bullish is < 1.2 & Bearish is > 3.2
