Hello friends and welcome to my assignment task by professor @imagen, In this assignment, I will provide a detailed review of the concept and basis of Crypto Analysis. I hope you enjoy the class.

Question one

What are the differences between Fundamental Analysis and Technical Analysis? Which is most commonly used?

Basically, I like to think of analysis in general as an inquisition into the unknown in market discourse. This very basic foundation of my idea of analysis, in general, can be further buttressed by understanding that in the market, movement is done in a downward to upward and vice-versa pattern; when there are so many buyers, price will move to an uptrend, and in the case of so many sellers, price will move to a downtrend. Trading according to the market movement is how traders make profits and the opposite is how loss is made. However, the process of knowing what to trade is what is known as “analysis” basically. It involves a mathematical and statistical approach towards predicting price movement. In market analysis, there are basically two methods of analysis: Fundamental and Technical analysis.

Both Fundamental and Technical Analysis is very important in analysis for several reasons but most importantly is that they are efficient in obtaining factors that influence currencies or securities movements in the market. Both methods also function in such a way that they forecast and lay grounds for strategies to approach the market. However, they are fundamentally different in their functions and this is the basis of this discussion. Furthermore, they are also different in the sense of the pros and cons they possess.

Fundamental analysis is basically a type of market analysis that involves a process of evaluating stocks, securities, and networks, currencies for their value by examining the conditions, assets, and interactions in general. In my opinion, this is the most important element in any analysis, especially because the Technical analysis basically composed of input on prices of the financial exchange considered as well as its volume. In all logicality, technical analysis is done best when there is knowledge of fundamental analysis already; it is this that helps for accurate analysis because while Technical analysis may predict market moving in a particular direction, Fundamental analysis will always prevail in its analysis as it is more intricate.

Technical analysis is disadvantageous in trading analysis because it involves expecting market to make a routine of movement or fluctuations when in actuality, prices are expected to be haphazard or follow the fundamental analysis. Another disadvantage of technical analysis is that, since it helps traders identify patterns and trade in line with it, the majority of traders that identify this pattern can be responsible collectively for making price move in a particular direction; this could also be an advantage in the sense that since the goal of the trader is to make profit, he can simply align with the general traders and make profits. Technical analysis involves charts and price movements, as well as patterns and the quest is to discover signals indicating price entry, take profit or stop losses.

Fundamental analysis basically takes into consideration aspects of security like its usage (or use case), its competition, its team and investors, and whitepaper (which is basically a blueprint of the project. Fundamental analysis is more intricate when factors like market capitalization, circulating supply, total supply, maximum supply, ATH/ATL, and liquidity. Technical analysis on the other hand involves patterns in price movements, zones, and indicators.
Fundamental analysis is done also by considering factors that exist outside or beyond the security system; basically its relations with the outside world. Technical analysis is fixated on the current, the actual price it is now, any resemblance in movement it has made before.

In doing fundamental analysis, one may also consider the objective of the project; basically its use case. How much it is solving problems in the real world would mean how much demand for security basically. Technical analysis on the other hand focuses on the demand and supply as exhibited in charts, with the hope of spotting new trends or continuations.

Fundamental analysis helps know if security or stock is worth holding in long term (basically if it is over or undervalued), while Technical analysis is more concerned with price prediction. The result is that in fundamental analysis, an undervalued result of security may send away the investor, but in technical analysis, the investor may engage in Selling or capitalizing on the low price for profit. The totality of this is that fundamental analysis helps measure investment possibilities while Technical analysis is for trading.

In my opinion, fundamental analysis is the most commonly used in all forms of analysis. This is because technical analysis involves mathematical processes that not up to 50% of security users know about or can handle. However, fundamental analysis is made easy by using the internet to find facts; just like I would use in approaching the question below.

Question 2

Choose one of the following crypto assets and perform a Fundamental Analysis indicating the objective of the Project, Financial Metrics, and On-Chain Metrics.

• Cardano (ADA)
• Solana (SOL)
• Terra (MOON)
• Chiliz (CHZ)
• Polkadot (DOT)

In Answering this question, I would use ADA (Cardano).

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Cardano was founded in the year 2015, by Charles Hoskinson, who was a co-founder of Ethereum (second biggest and most popular cryptocurrency) as well as BitShares. Its development is run by the Cardano Foundation; and it supports peer-to-peer transactions by means of its currency: ADA. Cardano’s platform’s development began in 2015, but it was not until 2017 that it was launched.

Objective of the Project

Cardano according to its website is a proof of stake blockchain network. Its framework was built with the intention to be interoperable, unlike earlier cryptocurrencies networks, to be highly scalable and vital in the real world. Its focus is on being a vital tool in DApps Platforms. One of the ways in which it intends to be usable in the real world is in the creation and listing of its currency: ADA. The ADA cryptocurrency is domicile on the Cardano blockchain. There is a promise that ADA would become the source of power in creating smart contracts and applications on the Cardano blockchain, such that without ADA, contracts cannot be executed. Cardano Company also boasts to develop a smart contract platform with more advanced features than any ever seen.

Since Cardano had been built by a former co-founder of Ethereum, most of its workings are similar to that of Ethereum, except that it has its own blockchain (built by Input Output Hong Kong), and uses a proof-of-stake protocol (Ethereum uses proof-of-work protocols). Just like Ethereum too, it allows developers to run and develop smart contracts on its smart chain. It is also similar to Bitcoin in the manner in which it records and keeps transactions by utilizing settlement layers (computation layer). However, Cardano’s intention has always been to solve the sluggishness of Bitcoin and the unscalable and unsafe nature of Ethereum. Since its kick-off, the adaptation of its blockchain technology for smart contracts and decentralized apps amongst others have caused the cryptocurrency to keep rising.

Many people are interested in Cardano (ADA) because it had at the late ends of 2020 stood out remarkably during the bullish run of currencies, and because of its fantastic blockchain; a technological novelty that has attracted and is still attracting developers. Some refer to it as the third-generation cryptocurrency because it was built solely for the purpose of checkmating the failures and shortcomings of the first and second generation of cryptocurrency (Bitcoin and Ethereum respectively).

Financial Metrics

The Financial Metrics of Cardano include its stock price, funding rounds, valuations, and financials.

Quite importantly is the fact that it's last funding round was four years ago (2016). It currently has a market capital of 71.23 Billion, its Maximum Supply is 45 Billion, and currently, it has a total supply of 32.90Billion. It has 25. 93 Billion In circulation, and as of now, it trades $2.61 billion as its average daily transaction volume, which was different from $9.81 million in 2017. It has also had an increase in the number of employees it had as well as website visits.

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On-Chain Metrics

This classification indicates the demand and usage for the Cardano blockchain. As said in its financial metrics, the shift from 9.81million dollars to $2.61 billion dollars of average transaction volume indicates a surge in demand. ADA’s Market Capital was $600,000,000 but as it progressed in the same year, its market capital expanded to $10 Billion, and later in 2018 for a brief moment, it was $33 Billion. However, it lost this value and returned to $71.232 Billion in recent times. Cardano has approximately a million active wallets in existence

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As can be seen in the above, at the 48hours completion, price moves lower

Question 3

Make a purchase from your verified account of at least 10 USD of the currency selected in the previous point. Describe the process. (Show Screenshots)

In order to attempt this, I chose to use Binance to make my trade.

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• As can be seen above, I bought 7.9 ADA at the rate of 2.147 which is approximately 16.961$. It is also worthy of note that I use USDT in the process of exchange for my purchase.

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• As can be seen above, I have successfully purchased ADA.

Question 4

Apply Fibonacci retracements to the previously selected asset with a 4-hour time frame on the platform of your choice. Observe the evolution of the price at 24 and 48 hours, did its value rise or fall? Seek to identify resistance and support levels. (Display Screenshots at 0, 24, and 48 hours of purchase where the date and time are observed.)

For this task, I used TradingView. As at 0hours, I pulled out my ADA/USDT Chart on Trading View. As can be seen below

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• I click on the options to plot my Fibonacci retracement level and I get a pop-up of so many other analytical tools including the Fibonacci retracement tool.

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• I proceed to click on it and plot the levels between the most recent HL (indicated by A Recent Low below) and the most recent HH (indicated by A recent High below). The result can be seen in the screenshot below. As at the time the screenshot was taken, price ranged and did not make a new high but instead rallied towards the 78% (0.78) Fib level. The current price as of then was 2.148 USDT.

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• After 24 hours, the price does not move considerably to a high or a low but keeps consolidating as can be seen below:

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• From the 24 Hour movement, I can see that there is little liquidity injected into the market and this is why price makes no significant movement but only consolidates. This is an instance of when fundamental analysis works hand in hand with technical analysis. Fundamental analysis would have helped me as a trader understand that in the first 24 hours, nothing significant was going on in the market.

What are Bollinger Bands?

In the discourse of market analysis, Bollinger bands are technical analysis tools. They are one of the most important and commonly used technical analysis tools. They were named and developed by the famous technical analyst: John Bollinger. They involve chart pattern of analysis (basically statistics), they function to analyze prices by studying volatility through time through a method that involves a set of trend lines and bands which traders believe that if prices move towards the upper band, the market would be in a buy and if price move towards the lower band, it would be a sell. They can also be explained by a pictorial representation of it being a plotting of three lines on a chart representing range; one up, one down, and one in the middle.

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The Bollinger Band is further defined by a set of 22 rules that John Bollinger develops in his analysis.

How do they apply to Crypto Technical Analysis?

Bollinger Bands are a technical analytic tool in the cryptocurrency market because they can help make trading decisions. They can help predict or anticipate a trend’s direction and anticipate reversals as well. It can function to help crypto traders know how strong a crypto security is in relation to uptrend or when it is in a downtrend. Like said earlier, the purpose of technical analysis is to expressly know when to buy or when to sell. However, it is important to note that just like all technical analytical tool, the Bollinger band is also flawed in that reliant on it alone is doom.

With which other tool or indicator would you combine the Bollinger Bands to analyze a Crypto? Justify your response.
During my research on Bollinger Bands, I discovered that the founder himself advocated against using his theory as a stand-alone analysis in trading. He suggests that it be used with other indicators or tools and the purpose of this is to gain accuracy; meaning that the Bollinger Bands is not a 100% accurate Technical analysis tool. For the purpose of answering the question here, I will preferably combine the Bollinger Band analysis with RSI (Relative Strength Index).

In the class exercise, I got to learn that the RSI shows prices strength simply by comparison the movement of the closing prices. The RSI functions by scales (0-100) and when it is put together with the Bollinger Band, what it does is that it helps to verify the analysis the Bollinger Band had suggested initially. If a security for example hits the upper band in a Bollinger Band analysis; indicating that there would be a strong buy, confirmation would be made when the RSI scores about 70% and above. This will then indicate that the trader can partake in the buy market. However, if the RSI indicates 50% and below, it is an indication that the trader should beware of trusting the Bollinger Bands and that unlike the uptrend predicted, a downtrend may occur.

Conclusions

My most important lesson here today is the knowledge I have gained in the importance to blend fundamental and technical analysis in order to make decisions in the market. Earlier classes have explained that the market can be profitable and can also bring loss, but in order to be a good trader, one must consistently make gains. In order to make gains, a good trader never overlooks both analyses styles.

Prior to this class, I have heard questions like “what really moves the market? Fundamentals or Technical analysis” and by the end of this exercise, I know that indeed, fundamentals are responsible for market movement while Technical Analysis is just a method that allows the trader to sync with market movement.

I also learnt that the technical analysis involved in asset or market analysis is what makes trading technical; this is largely the reason why majority involve in cryptocurrency but do not trade in the market. I remain grateful for the knowledge I received in this class and hope to make it practicable it in ways I can earn.

All images used in this post unless otherwise stated were extracted from Binance and Coinmarketcap.

Special thanks to Professor @imagen