Top-down analysis of cryptocurrencies: how to pick the best assets for the short term

Top-down analysis of cryptocurrencies: how to pick the best assets for the short term

There are thousands of cryptocurrencies and tokens. To identify assets for trading and investments, some people use screeners that filter assets by past performance and other factors.

The alternative approach is to start with an investment thesis based on a top-down approach.

This method comes from stock analysis, where an analyst would start by reviewing the global economy and its direction. After that the analyst would explore the most attractive sector and only as the final step would they select individual securities.

In digital assets, specific sectors are not yet strongly correlated with the global economy. Instead, nearly everything is connected to Bitcoin, the oldest and most influential digital asset. Since BTC’s price swings often move other digital assets, it should be the starting point for any analysis. ETH is the second most important asset, because many tokens are based on the Ethereum platform. Only after that does it make sense to narrow down to a specific niche or segment and finally review individual assets.

Here is the general approach for short-term (1–2 weeks) top-down analysis of the digital asset market:

  1. Analyse the BTC/USD chart, forecasting the trend for two weeks;
  2. Analyse the ETH/USD chart;
  3. Research a niche or segment within the digital asset sector;
  4. Check the lead asset’s chart;
  5. Review any major events for the segment;
  6. Analyse individual assets and select the top asset.

Let’s go into more detail.

Analyse the BTC/USD chart, forecast the trend for two weeks

Start the analysis by looking at the BTC/USD chart and trying to understand the overall movement of the market.

Try to predict the trend for the next two weeks: is it an up, down, or side trend?

Because most assets follow Bitcoin, looking at this chart will help you to determine the direction of the market as a whole.

Review the ETH/USD chart

Once you’re done with Bitcoin, analyse the ETH/USD chart, which reflects the price fluctuations of the Ethereum cryptocurrency. Again, try to predict the trend for the next two weeks.

ETH is a very prominent asset because a large number of tokens have been launched on the Ethereum platform as ERC-20 tokens. As a result, the whole altcoin market also correlates with the movement of ETH.

Once you’ve seen the trends for BTC and ETH, you might start to come up with ideas for how different segments would perform in a given environment.

Research a digital asset segment

Unlike equities or debt, digital assets do not yet have an established categorisation of industries or sectors.

Instead, there are different ways to group assets: by use case (for example exchange tokens such as BNB or KCS), platform (e.g. Ethereum, NEO), consensus algorithm (such as DPOS platforms), or other common factors.

For this step you either need to have an investment thesis or rely on a given research provider who would categorise assets based on specific criteria.

Alternatively, you can check ‘rank questions’ on Cindicator’s Collective Intelligence platform. These questions ask about the ranking of assets within a specific segment. Cindicator's questions could help you to narrow down to an industry since Cindicator's team of analysts has already done the heavy lifting of categorising assets and picking promising niches.

Once you’ve identified the segment of interest, you should analyse the chart for the leading token in the segment. For example, if you’re researching tokens on the NEO platform, you should check the NEO/USD chart for evidence of any major trends over the next few weeks.

It’s important to check whether there are any relevant fundamental events that might affect the asset price (testnet launches, major developer conferences, onchain voting, etc). Search for the asset’s ticker on Google News or other aggregator.

Select individual assets

Finally, it’s time to analyse each digital asset in the segment!

For each asset you will want to do the following:

  1. Review the asset’s chart against BTC and/or USD, identifying the trend for the next two weeks;
  2. Check the project’s Telegram for any upcoming events: check any pinned messages, as they may contain important information;
  3. Check for any major news on Twitter (be careful, as information is often unverified) by simply entering the asset’s ticker with the $ sign (e.g. $NEO);
  4. Write down your assessment of how you think the asset price will perform.

Then repeat this process for all assets from the segment. Finally, compare your notes to select the asset that looks the most promising.

While this process seems complicated, with practice you can do it faster and faster. Furthermore, almost nobody goes to these lengths, which means that this could really set you apart from people who are simply guessing.

If you want to see how it’s done, check out our video guide to forecasting digital assets with Cindicator’s rank questions:

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