Short Rant on Crypto TA + some decent Quant Research
One of the problems regarding crypto is that because it's so nascent, people are struggling to (1) understand wtf it is and (2) develop a logical framework to evaluate it.
You'll see that many people QUICKLY come to the conclusion that it is worthless because there is no valuation framework. *snorts*
Well, I can see why a lot of people have this misunderstanding. They are reading trashy clickbait news articles or reading sarcastic tweets by pseudo-anonymous twitter accounts (like mine).
Most of the "analysis" on cryptocurrency is unfortunately, technical analysis, and.... ba dum tss
Useless.
Whoa whoa whoa whoa. Stop right there, chartist.
WHY do I say that TA in crypto is useless?
Well, firstly, there is no universal base. Unlike stocks, which are priced in the local currency that it trades on, cryptocurrency is traded against every fiat imaginable, as well as OTHER cryptocurrencies. Result? There are 100s of charts for the same asset. So if you think that TA works through self fulfilling prophecies, how can this be true if everyone is looking at different charts? Every indicator would be off-sync from another chart based in a different currency.
Next reason, and this is probably more important - except for the top few cryptocurrencies, majority of cryptocurrencies are trading on paper thin volumes. This means that a single person can pump in $10,000 and market buy to eat the orders in the order book and boom the crypto suddenly spikes a million or more in marketcap.
This is related to another point, which is fake volume. A lot of exchanges have fake volume, and a lot of the data aggregators just lift off the printed volume that exchanges claim that they are doing (but are not), and this screws up a lot of data.
Now, knowing that (1) there is no single chart that everyone uses, (2) volumes and order books are paper thin because (3) a lot of volume is actually faked, you can EASILY come to the conclusion that technical analysis in crypto is - at best - worthless.
And at worst? It's pure manipulation by "painters". These are people that pull up the most popular base currency charts that people are using, and just "paint" technical analysis patterns. They will "paint" a bullish pattern, let it emerge, AND THEN START DUMPING INTO THE VOLUME. And why do they do that? Well, I said it before, actual legit trading volume can be paper thin. They actually need to induce buying from other people so that they can sell. Of course, this also works vice versa if they want to buy - just paint a "bearish" pattern, and then start buying from people who THINK that it is going to dump.
Anyway, I just wanted to say how extremely worthless and trash technical analysis is for crypto. If you believe in it and it works for you? Great, continue what you do and power to you man. For other people, well, now you know why your TA doesn't work on crypto like how it works on other assets.
And that nicely brings me to the second part of my title: some decent quant research.
I actually just stumbled upon this myself. I gave it a good speed read and its of very good quality. For people looking for some actual logical ways to approach crypto, I think these 2 pieces by the same people are a very good start.
The first is "The State of Bitcoin", which makes the 360 degree long term case for Bitcoin with some short term analysis.
The second is "Bitcoin Holder Analysis Through Cycles", which is a more technical piece that links chain analysis with price history and mathematics to forecast how the future could play out. As long as you understand what are UTXOs you can give this a read, if not, you might want to understand that term first.
As a new asset class, a lot of people are still struggling to understand crypto. My personal take is that you really need to understand the fundamentals first. Just like how accounting makes for a fantastic base to start fundamental analysis for stocks, understanding cryptocurrencies, how they work and what about them is actually valuable is necessary knowledge to evaluate them fundamentally.
Of course, if you want to use astrology and meme lines to make financial decisions, it is also entirely up to you.
You'll see that many people QUICKLY come to the conclusion that it is worthless because there is no valuation framework. *snorts*
Well, I can see why a lot of people have this misunderstanding. They are reading trashy clickbait news articles or reading sarcastic tweets by pseudo-anonymous twitter accounts (like mine).
Most of the "analysis" on cryptocurrency is unfortunately, technical analysis, and.... ba dum tss
Useless.
Whoa whoa whoa whoa. Stop right there, chartist.
WHY do I say that TA in crypto is useless?
Well, firstly, there is no universal base. Unlike stocks, which are priced in the local currency that it trades on, cryptocurrency is traded against every fiat imaginable, as well as OTHER cryptocurrencies. Result? There are 100s of charts for the same asset. So if you think that TA works through self fulfilling prophecies, how can this be true if everyone is looking at different charts? Every indicator would be off-sync from another chart based in a different currency.
Next reason, and this is probably more important - except for the top few cryptocurrencies, majority of cryptocurrencies are trading on paper thin volumes. This means that a single person can pump in $10,000 and market buy to eat the orders in the order book and boom the crypto suddenly spikes a million or more in marketcap.
This is related to another point, which is fake volume. A lot of exchanges have fake volume, and a lot of the data aggregators just lift off the printed volume that exchanges claim that they are doing (but are not), and this screws up a lot of data.
Now, knowing that (1) there is no single chart that everyone uses, (2) volumes and order books are paper thin because (3) a lot of volume is actually faked, you can EASILY come to the conclusion that technical analysis in crypto is - at best - worthless.
And at worst? It's pure manipulation by "painters". These are people that pull up the most popular base currency charts that people are using, and just "paint" technical analysis patterns. They will "paint" a bullish pattern, let it emerge, AND THEN START DUMPING INTO THE VOLUME. And why do they do that? Well, I said it before, actual legit trading volume can be paper thin. They actually need to induce buying from other people so that they can sell. Of course, this also works vice versa if they want to buy - just paint a "bearish" pattern, and then start buying from people who THINK that it is going to dump.
Anyway, I just wanted to say how extremely worthless and trash technical analysis is for crypto. If you believe in it and it works for you? Great, continue what you do and power to you man. For other people, well, now you know why your TA doesn't work on crypto like how it works on other assets.
And that nicely brings me to the second part of my title: some decent quant research.
I actually just stumbled upon this myself. I gave it a good speed read and its of very good quality. For people looking for some actual logical ways to approach crypto, I think these 2 pieces by the same people are a very good start.
The first is "The State of Bitcoin", which makes the 360 degree long term case for Bitcoin with some short term analysis.
The second is "Bitcoin Holder Analysis Through Cycles", which is a more technical piece that links chain analysis with price history and mathematics to forecast how the future could play out. As long as you understand what are UTXOs you can give this a read, if not, you might want to understand that term first.
As a new asset class, a lot of people are still struggling to understand crypto. My personal take is that you really need to understand the fundamentals first. Just like how accounting makes for a fantastic base to start fundamental analysis for stocks, understanding cryptocurrencies, how they work and what about them is actually valuable is necessary knowledge to evaluate them fundamentally.
Of course, if you want to use astrology and meme lines to make financial decisions, it is also entirely up to you.
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