The Most Common Crypto Metrics: A Beginner's Guide

Analysing Cryptocurrency

The number of people use crypto that keeps increasing, which is satisfactory. They are a new way to do business with money, showing a lot of promise for the future. If you're new to cryptocurrencies, it can be challenging to comprehend how they're measured.

Before deciding whether to invest, you should know the fundamentals of how these digital currencies work. We'll examine the most common crypto metrics and explain them in this article.

Market Capitalization

Market capitalization, or "market cap," measures how big a cryptocurrency is in comparison to other currencies. To figure it out, you need to use the formula below:

Multiply the current price of a cryptocurrency by the total number of coins in circulation

For example, if one unit of a cryptocurrency costs $10,000 and there are 20 million coins in circulation, that cryptocurrency's market capitalization would be $200 billion.This measurement is significant because it illustrates the size of the cryptocurrency market. It can assist you in determining whether the price of a particular cryptocurrency is too high or too low.

Funding Rates

Funding rates are the payments that traders make to each other regularly so that the price of a perpetual futures contract stays close to the cost of the index. An asset purchase or sale contract with no expiration date is known as a perpetual futures contract. The funding rate, also known as holding fees, must be paid by traders who wish to hold positions for an extended period of time.

The number of contracts and the funding rates show how traders feel about the perpetual swaps market. Favorable financing rates give long-term traders the upper hand and make them more willing to pay for funding from short-term traders. Negative funding rates demonstrate that short-term traders are more powerful and willing to compensate long-term traders.

Open Interest

Open interest looks at how many contracts are traded on the market at any time. It's an additional indicator of public interest in the cryptocurrency market. One of the most popular volume-based indicators is it. It counts all open positions that market participants currently have, both long and short.

The calculation is done by adding up all the open trade positions and removing all the already closed trades. This metric is essential as it shows how much money comes into markets. The amount of sincere interest goes up when more money comes in and down when more money goes out.

Stablecoin Flows

The volume and activity of stablecoins as a whole are gauged using stablecoin flows. One can get a better understanding of how investors feel about stablecoins by looking at this data.

Investors may choose stablecoins as a safe haven, but they can still quickly reinvest funds in the cryptocurrency market if they anticipate a decline in the value of their holdings during a sell-off.

Change Happens

Exchange flows are a way to measure how many cryptocurrencies are coming into and leaving an exchange. In particular, it looks at how many coins are put into or taken out of exchange wallets.

There are three different metrics to look at when it comes to exchanging flow:

Index of Fear and Greed

The Fear & Greed Index is a broad indicator for cryptocurrencies that measures investors' feelings. The Fear and Greed Index for Bitcoin (BTC) and other popular cryptocurrencies was made by a software company called Alternative. me.

Based on how much weight each data source has, the index gives a score between 0 (extreme fear) and 100 (excessive greed), which shows how people feel about the cryptocurrency market as a whole.

Every day at midnight, Greenwich Mean Time, the Fear and Greed Index, and other crypto asset indexes check the market's mood to see how people feel about it. The Bitcoin Fear and Greed Index, like other indexes for the different crypto assets, is based on the idea that investors in crypto tend to be volatile and emotional as a group.

The ratio of network value to transactions (NVT)

The NVT ratio shows how the size of the market and the number of transfers are related. One way to look at NVT is as a comparison of two of Bitcoin's main selling points:

Market Cap: Store of Value

Transfer Volume: Settlement/Payments Network

With the NVT ratio and the following broad framework, users can see how well these two parts work together.

Realized capitalization

Realized capitalization, also called "realised cap," is a type of market capitalization that gives each transaction output that hasn't been spent a value. Instead of its current Value, the last price at which it was sold is used as a guide. Because of this, it shows the actual Value of all the coins in the network instead of their market value.

The realized cap lessens the effect of lost and long-dormant currencies by giving coins more Value based on how much they are actually used in an economy. When a coin that was last transferred at a much lower price is spent, the coins are revalued at the current price, which raises the realized cap by the same amount.

Bitcoin Heat Map

The Bitcoin heat map is based on the idea that Bitcoin's price has usually reached its lowest point in a cycle around its 200-week moving average. This cryptocurrency indicator looks at past price data and makes a color heat map based on the percentage of price increases over the 200-week moving average (MA).

Long-term By looking at how the colors change every month on the Bitcoin heat map, investors can spot trends. Orange and red dots on the price chart, for example, have been good times to sell Bitcoin in the past because they show that Bitcoin has been overbought compared to its price over the last 200 weeks.

On the other hand, it's usually a good time to buy Bitcoin when the price dots are purple and close to the 200-week MA.

Bitcoin Rainbow Chart

The Rainbow Chart gets its name from the eight rainbow-colored bands that divide Bitcoin price ranges into categories like "Fire Sale," "Accumulate," and "HODL." Based on trends seen in previous cycles, investors can use the Rainbow Chart method to find patterns that show when Bitcoin is at its best point in the process.

But when you look at this long history of data, it's important to remember that the eight bands don't work as exact buy and sell signals. Especially in crypto, the past is not always a good predictor of the future. This is because the market is volatile, among other things.

On-balance volume (OBV)

On-balance volume, or OBV, is a technical indicator that shows how fast a cryptocurrency is moving. It is a way to predict how the price of an asset will change by looking at how its volume changes. OBV is a compounding indicator that adds to the volume on days when buying and selling pressure is high and takes away from it on days when buying and selling pressure is low.

According to the OBV principle, a stock's 24-hour volume is "up-volume" when its price closes higher than it did the day before. It is called "down-volume" when the price closes lower than the last time it closed.

A positive OBV reading means more pressure to buy than to sell, while a negative OBV reading means more pressure to sell than to buy.

Accumulation/Distribution Line

The accumulation/distribution line shows how the price of an asset is related to how many buyers and sellers there are in that market. Traders can decide if the market is bullish or bearish based on whether the price and the indicator are moving in different directions.

When the price of an asset drops quickly and then goes back up, it could mean that demand is about to go up. This means buyers are getting more power, and sellers are losing control.

The Average Index of Direction (ADX)

The average directional index (ADX) is a technical indicator used to measure a trend's strength. Two more indicators show whether the trend is going up or down. The negative directional indicator (-DI) measures a downtrend, while the positive directional indicator (+DI) measures an uptrend.

Because of this, the ADX often has three separate lines. These help traders decide whether a trade should be long or short (or if it should be taken at all).

Aroon indicator

The Aroon indicator is a technical indicator that can be used to determine when a price trend is changing and how strong it is. The idea is that solid uptrends will often reach new highs, while strong downtrends will often reach new lows.

The indicator is made up of the up and down lines of the Aroon:

The up and down lines of Aroon move between 0 and 100. Values close to 100 mean the trend is strong, while deals close to zero mean the trend is weak.

Moving Average Convergence-Divergence Indicator (MACD)

The moving average convergence divergence (MACD) shows how the price of an asset is related to its two moving averages. In general, the MACD helps investors figure out if the trend of a price going up or down is getting stronger or weaker.

It is found by taking the difference between the exponential moving average (EMA) for the past 26 periods and the EMA for the past 12. The "signal line," the same as nine days of EMA, tells traders when to buy or sell. Once the MACD goes above the signal line, traders can buy the asset. When it goes below the signal line, traders can either sell the asset or borrow it to sell it.

Index of Relative Strength (RSI)

The RSI is a technical analysis indicator that looks at the size of recent price changes to figure out if a stock or other asset has been overbought or oversold. An oscillator shows RSI with a range of 0 to 100.

According to how the RSI has been used and interpreted in the past, a value of 70 or more means that a security is overbought or overvalued. So, a price correction or a change in the trend may be coming soon. On the other hand, an RSI reading of 30 or less means that the security is either oversold or undervalued.

Stochastic Oscillator

A stochastic oscillator compares the closing price of a security to the costs it has had over a specific period. If you change the time frame or take the moving average of the result, you can make the oscillator less sensitive to changes in the market. Overbought and oversold trading signals are generated by a set range of values from 0 to 100.

The range of the stochastic oscillator is fixed, which means that it always moves between 0 and 100. So, it can show whether the market has been overbought or oversold. Usually, values over 80 are seen as "overbought," while deals under 20 are seen as "oversold."

The Puell Multiple indicators for cryptography

The Pull Multiple is a way to compare how much money Bitcoin miners make to how much Bitcoin costs. This metric gives a rough idea of how much selling pressure is caused by miners selling their Bitcoin rewards to pay for fixed costs like mining hardware and electricity.

Traders often use the Pull Multiple to determine how well miner revenues are doing. For example, a high Pull Multiple could mean that there isn't much pressure to sell, while a low Pull Multiple could mean a lot of stress. Miners, huge ones that institutions run, usually have access to a lot of Bitcoin. Because of this, knowing how much pressure they are under to sell can show you short-term price patterns before they show up on the markets.

The stock-to-flow (S2F) crypto model

The S2F model is a widely used indicator that shows the ratio between an asset's current stock and its new production flow. Most of the time, this ratio is given as a percentage of the annual growth in supply or the number of years it would take to double the supply at the current production rate.

The idea behind S2F is that Value comes from the fact that there isn't enough of something. In Bitcoin, for example, the current stock is the number of Bitcoins in use, while the flow of new production is the number of Bitcoins that have just been made. The S2F ratio shows how many years it would take to double the amount of Bitcoin being made at the current production rate.

Author Bio

Derek T Belford is a freelance content writer with a passion for all things related to music, blockchain, and tech. He looks forward to bringing you more news relating to the fast-paced world of Crypto, NFTs and Metaverse Development from her home office in New York.