It’s hard to look at the price charts of the big crypto assets and not cringe. After a lengthy bear market, the crypto markets experienced a significant dump and we are looking at a lot of misery.
Times like these are dark for all those invested in crypto. Financial markets are cyclical in nature and what is happening now is necessary for crypto to experience another boom. Which it will.
The best thing we can do in times like these is educating yourself, improve and prepare yourself better for the next bull run.
Understanding crypto markets
One thing that sets the world of crypto apart from other asset classes is the level of transparency. Another is that market makers, institutional money, the smart money AKA the whales — have a greater impact in crypto than other asset classes.
There are tons of publicly available data unique to this asset class which allows us to analyze and monitor the movements of whales.
To understand and profit from any asset class, we need to understand how smart money work. They want minimum hindrance and maximum control in order to play. To understand the smart money is to understand the market.
To describe what they actually do as simple as possible — they accumulate assets during market depression & distribute assets during market euphoria (The opposite of what the masses do).
With available tools and proper analytical skills, we can both identify which coins smart money are most likely to go for and then monitor their movements as they happen — and join their game to profits.
We want to be like these fishies:
Picking shitcoins 101
Most crypto traders have little experience from traditional markets and don’t know how to properly fundamentally analyze coins. It is inherently difficult to do and require extensive studies in multiple domains. This leads to most people not doing any research at all and invests in assets with great hidden risks.
The main driver from creating something like this comes from the mentality that everything is your fault as a trader. Obviously, there are many things outside of your control, but if you approach your profession with that mentality you attempt to quantify and mitigate all of the risks within your control.
This data is intended to help you do exactly that.
The two most critical parameters to how a coin can explode in price are coin supply (Circulating, total and max supply) and block structure for PoW coins or emission schedule for PoS coins. Also important to consider is the existence of a premine and its size if there is one.
We are going to cover:
- Supply assessment
- Emission and inflation estimates
- Wealth distribution analytics
With this data, we can identify which coins are most likely to be used by whales and with the wealth distribution tool we can learn when to buy and sell
Total supply in circulation
Total supply is defined as the total amount currently in existence. You want at least 66% of total supply to be circulating in the free markets and 100% is optimal.
A difference between circulating and total supply can indicate that the developers are holding amounts of coins privately. What has happened in the past and will happen again is sudden large drops of coins occur which DUMPS the price on you. Big players don’t like this threat. Some coins have legitimate drops which won’t affect price as they are preannounced and smaller in size — but this requires you to put in the research.
Max supply in circulation
Circulating supply greater than 66% of max supply is optimal.
The maximum supply is the max amount of coins that can ever be produced/released. It will tell you whether a coin is going to suffer from large levels of inflationary pressure.
Ex: Coin X has had 100 000 coins come into existence since it was launched a week ago. Currently trading at 0.0001 BTC per CX, giving it a market cap of 10 BTC. At this small of a market cap, you can only imagine it will rocket. But hold on — let’s check the max supply: 1bn coins. This would put CX at a max market cap of 100.000 BTC. That puts it within the top 30 coins. This is a highly devaluatory metric. In this case you need to bet that the demand will continue to grow equal to the growth of supply.
In simple terms — if the deflationary pressure is at 20%, you will need an equal increase in demand to just keep the coin relatively stable in price = That’s just a huge risk which is best avoided. To find the genuine exceptions, we need to understand how the block rewards are designed for this specific coin = Much more research.
Inflation rate
By analyzing the block structure or emission design of a coin, we can roughly work out its rate of inflation. If a coin suffers from high inflation it will tell you that there will be a large future supply entering the market resulting in each currently existing unit drop in value.
Imagine you have a glass of wine and someone decides to pour some water into your glass. You’ll have more ‘wine’, but it will be weaker per unit. It’s the process of dilution. You need an increase in demand equal to the inflation rate just to keep the price steady.
Premine
This is when the team behind a coin reserves a specific amount of coins for themselves. If this is less than 2%, it’s usually for engineering, marketing, and business development. If it’s greater than 2% it’s almost always for “engineering”, “Marketing”, “business development” and “charity”.
The closer to 0% premine is optimal. There are exceptions to the rule, but in general, it is advised to place skepticism towards projects that have a premine higher than 2%.
When we process this data according to the above metrics, we should, in theory, have a smaller basket of coins that are of high interest to whales.
That’s great, but when to buy?
Wealth distribution analytics (whale tools)
This is the exciting stuff. For some reason, most traders don’t take advantage of this information. In simple terms what this does is monitor the movements of the biggest players — the whales.
Whales are usually the most profitable players of the crypto markets and tracking the behavior of the richest owners can be extremely valuable information to you as a trader. If they begin to distribute their holdings after prices have risen many times — it’s a fantastic signal to exit the market with them.
Or if the price has been tanking for months and the richest wallets are increasing their positions, time to study the market and consider entering.
Look again at this image. Whales enter in depression and exit in euphoria. Masses do the opposite. If we as traders & investors can monitor the movements of whales, would that be beneficial to us?
Maybe one reason for traders not exploiting this information could be the lack of tools for it. We have been recording the whales for some time now and we are soon about to launch a set of tools that lets you analyze the movement of whales in great detail. The goal is to generate signals that you can use to profit from your trading.
Conclusion
This method for analyzing coins is not a ‘magic wand’, but it can help make you a smarter investor. Uncover and avoid hidden risks and discover and trade coins that are of high interest to the most profitable players in the crypto markets.
This way of analyzing the crypto markets and its players came as a result of lots of painful mistakes. After too many investments in coins with hidden risks that blew up in our faces, we began studying the most profitable actors in the markets and ultimately found a way to track and join them.
Coindraft
To make it easy for you we have built Coindraft which highlights all of the above. Its currently in beta version, so any feedback is greatly appreciated.
