The January collapse of Crypto-Currency market showed that the usual methods of market analysis applied to tokens work poorly, to say the least. Regular predictions that the rate of bitcoin or other crypto currency will reach such a level of support and then resume growth again were justified not more often than prescribed by the theory of probability.
With fundamental analysis, too, everything is not easy. Analysts agreed that the winter market collapse was caused by a string of negative news related to tightening regulation in China, the US, South Korea and other countries. However, when it became clear that the ban on crypto-currencies in South Korea was a fake, the stock exchanges practically did not react to the positive, and the decline in quotes continued. What does not fit very well with the theory of fundamental analysis.
On the other hand, after the collapse stopped, there were many authoritative statements about the need to tighten the regulation of the Crypto-currency. This, in particular, said the head of the International Monetary Fund Christine Lagarde and the chairman of the European Central Bank, Mario Draghi. It has already been decided that the issue of international regulation of the turnover of tokens will be included in the agenda of the forthcoming G20 summit, and the US Commodity Futures Trading Commission (CFTC) decided to establish two subcommittees that will regulate crypto-currencies.
In terms of fundamental analysis, such news should lead to a new market decline, but this did not happen. Not much affected by market trends, and a number of news about restrictions on the purchase of currency from bank cards, announced by large banks in several countries.
It turns out that from the point of view of economic theory, we are dealing with an extremely inefficient market, quoting assets that take into account only a small part of the information available to players. This means that on Crypto market you can not rely fully on either technical or fundamental analysis. And you basically can not know when the specific token will go up or fall in price.
Most remarkable: if you do not engage in intraday speculation, then you do not need such predictions. Because one of the main differences of the Crypto market from other exchange markets (and one of its main riddles) is the synchronism of the movement of quotations. If the synchronous decline can still be explained by the mass panic foment in profile chats, then the simultaneous restoration of quotations to logical analysis almost does not lend itself.
Of course, we are not talking about speculative outbursts related to news about specific crypto-currencies. In recent weeks, we have seen a jump in the price of Litecoin after the announcement of the fork or a 10% rise in Ripple amid reports that the Saudi Arabia’s central bank has signed an agreement with the company on the application of its technology. Day traders managed to make money on these surges, but for investors the picture remained almost unchanged: after a jump in price and correction, quotes began to move again at a general pace with the market.
This, in turn, means that crypto investors do not need to particularly care about the diversification of assets – you can choose tokens, guided solely by personal perceptions and sympathies. At the same time, your chances of earning or losing money will not be generally higher than when you compile an investment portfolio in accordance with the wisest scientific theories. Diversification is generally a great idea, but in the case of crypto currency it does not work yet.
If you want to invest in crypto-currencies, the most successful strategy will be to choose a token that you like, buy it and keep, regardless of market volatility. The long-term direction of the price movement is obvious: Crypto-Currency market will grow, and, most likely, the growth will be frontal in all tokens. Perhaps, over time, the market is being transformed, and quotations will become increasingly specific. But when and why such a transformation can occur, it is absolutely impossible to say.
Write: Richard Abermann