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4 Cryptocurrency Features Not Found in Traditional Finance

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4 Crypto Features Not Found in Traditional Finance?

4 Cryptocurrency Features Not Found in Traditional Finance



Investors may find the tools they’ve used in the past don’t apply to cryptocurrency, but crypto offers a new set of data and information to explore.


 Crypto market and  financial markets


Investors familiar with traditional financial markets may find it difficult to use familiar financial analysis methods to value cryptocurrencies. For example, a traditional investor may look at the fundamentals of a stock or security to decide whether or not to invest.

Fundamental analysis is a method of determining the value of a security to understand whether it is a good buy at current market prices. Investors will look at certain factors such as price-to-earnings (PE), price-to-book (PB) ratio, earnings per share (EPS), and free cash flow (FCF), among others. a result. 

But you can't listen to a quarterly income call for a token because they don't exist. For example, for bitcoin (BTC), there are no revenues, profits or operating expenses to consider - there is no bitcoin "company" running the show - bitcoin's decentralized nature is an important and constitutive part of the project.


So what can analysts and investors use instead of making decisions? And what else should they keep in mind?


Tokenomics


Tokenomics is a popular and important way to analyze a cryptocurrency project. Tokenomics is the incentives and math system that manages a crypto project. A token that has a solid plan for why people will buy and hold tokens over time has a good chance of success, while a project with weak tokenomics is doomed to fail. Understanding the tokenomics of a project is crucial to making a sound decision.


Token distribution is a big part of tokens – it means understanding who owns the tokens and how they are distributed. Another issue to consider is whether the supply is limited or unlimited and how new tokens enter the ecosystem. For example, Bitcoin limits the supply to 21 million coins; New coins enter the ecosystem via proof-of-work, while Cardano (ADA) is a proof-of-stake blockchain with a maximum supply of 45 billion.


Other things to consider are:


  • Have tokens been burned or removed from the blockchain?
  • Is it an inflationary or a deflationary token?


Consideration of these elements can signal investors about the long-term viability and expected growth of a cryptocurrency. For example, if a coin is highly inflationary, this may signal to the investor that the future value of the coin is in question.

There are many other factors that go into understanding all the tokens of a project. To find tokens and other important information, analysts often refer to the whitepaper of the project.


What is White papers?


To understand the full scope of a cryptocurrency, reading the whitepaper is an important starting point.


  • Whitepapers are documents specific to a crypto project. The whitepaper is published by the creator(s) of a token or token before the project begins. A whitepaper is a document that explains the purpose of the project, the statistics of the project, the formulas found in the project code, and the symbolism of the project.
  • By reading the whitepaper, investors will have a clear understanding of the developers' goals and aspirations. They will understand the market the piece is competing in and their future plans for the project. They can then use this information to begin formulating an investment thesis around the project. If you don't understand the "why" or purpose of the project after reading the whitepaper, that's a bad sign. The Bitcoin whitepaper can be found here and it clearly outlines the problem it is trying to solve and how it will achieve that goal.
  • The whitepaper is also a place to look for red flags and background checks about installers. A white paper filled with typos, plagiarized sections, promises of returns that seem too good to be true, or founders linked to failed projects or sweepstakes should alert investors about the project.

Read more: 4 ways to stay safe in crypto

Once an investor understands tokenomics and fully understands the aims and intentions of the project, they can begin to analyze the token's blockchain.


What is On-chain analysis?


One of the coolest things you'll find in crypto that you won't find in traditional finance is the availability of blockchain data available to everyone - transactions and wallet balances are there for the entire world to see them "on the chain", 24 hours a day, seven days a week.

On-chain analysis is the term given to the process of using information contained in a blockchain ledger to form an idea of ​​market sentiment. Analysts look at wallet balances, transaction data, gas fees, trading volume, active addresses, etc. to understand the market sentiment and whether it's a good investment. 

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