The 2018 CryptoCurrency Market Correction has Shown Most of the Trading Analysis on Social Media Ineffective in a Bear Market - A Call to Watch the Fundamentals Instead

(To be clear, this piece was written mainly because of the several newbies to cryptographically-enabled digital currencies that have approached expressing disillusionment or even got discouraged from the technology due to some of the analysis they consumed and followed, rather than focusing on the fundamentals and what gives rise to value.)

During this cryptocurrency market correction that effectively began late December 2017 for bitcoins, the fundamental metrices was already showing the signs of a correction. In an invited expert blog on cointelegraph highlighting the fundamental drivers were indicating a coming correction:

Source: 2018 Blockchain and Cryptocurrency Outlook: Expert Blog.

Also recently, I wrote about a week ago that Bitcoin does not seem to have recovered fully yet (here and here).

However, on social media, the trading analysts kept predicting a bull market. Even after the first drop from $19K to $10.4K by December 24th, they simply predicted new highs to follow it right away. Then when it crashed in January to $9K they declared the bottom was in. And then when it got to $8K they called the bottom; but it just went down further still. Even on Friday as soon as it turned up again past $10K after dropping below $9k, they declared it would break out. This has caused a lot of people to lose cash that could have just held on to. Instead they bought Bitcoins at $17K or at some value higher than $6K when they could maybe have bought 2x to 3x as much of the same.

The problem is not that analysts do not mean well but that trading analysis tools are not equipped to discern the fundamentals currently driving bitcoins. And the fundamentals are what gives rise to the sentiment of investors. For instance if the transaction fee chart has a certain trend, or time for transaction to confirm, or more businesses begin to no longer use an asset - those are important variables. Those will determine how end users and ultimately investors feel about the asset, and those fundamental metrices can be mathematically modeled and result in more relevant long term results than chart analysis based solely on the asset's market price. In a bull market, since everything was rising, it was easy to appear correct by drawing lines (and more new lines when those old ones are not followed) and predicting new highs; especially without specifying a time frame. Because eventually everything was going up so every bullish analyst was bound to eventually prove correct.

This is not good for the blockchain space in general and has caused significant disillusionment from new entrants who got in following such bullish predictions rather than focusing on understanding the technology and what makes different assets of this space valuable. Essentially new entrants need to take heed to the fact that much of the analysis they are consuming lacks much basis and focus on fundamentals. What makes things valuable long term. Steem for instance is one blockchain asset that is now actually being used by millions of users who are on the platform each day and contributing to it. It has a real use case. Several use cases. Many listening to those pushing assets that have no utility, dubious potential utility, or whose fundamentals are pointing to declining utility could get hurt financially.

As for Bitcoins, keep an eye on this one fundamental long term - the daily unique address. It measures how many actual new users are joining the platform. Through its existence over 9 years it has been a growing metric. If that metric is declining, there is virtually no chance for the asset to sustain any long term recovery.

Source: Blockchain.info on Feb 21 2018

For those interested in a more deep dive into details of models based on this fundamental metric check the reference below, or other more user friendly articles in my profile.

On a final note, the daily unique address growth rate could turn around say in a few days or week and we could likely start to see return to normal growth again. This article is not to be interpreted as one disparaging bitcoins. It remains a revolutionary and leading asset that ushered in the entire blockchain technology space. And there is nothing wrong with taking calculated risks on some of the new assets where yes their promise may or may not pan out, but if they do could create significant rewards. This is not written to disparage analysts, but simply a call for renewed focus on fundamentals and the understanding that most analysis lack the basis for the bullish calls that is prevalent in this space.

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Legal Disclaimer: I am not a financial advisor and this is not financial advice. The information provided in this post and any other posts that I make and any accompanying material is for informational and educational purposes only.

It should not be considered financial or investment advice at all. You should consult with a financial or investment professional to determine what may be best for your individual needs.

This is only opinion. It is not advice nor recommendation to either buy or sell anything! It's only meant for use as informative, educational, or entertainment purposes.