Analysis for cryptocurrency is done in the same manner as stocks, and by that I mean there are economic reasons behind the value of each project. Items in this space will get overbought and oversold, business news will play a role in what direction the market goes by reporting what events are taking place. It's all the same.
Yes, but different markets have different efficiencies which effects how one can model returns, this is because products differ and individual markets are more or less mature than others. The inefficiencies you can take advantage of differs across markets and products and as such subtle changes of method and risk must be accounted for.
This is the same for cryptocurrency, as not all of the projects behind the coin are doing the same thing. Ethereum is a platform as the Ether ( it's native coin ) is it's flag ship brand which lays on top of other projects on it's blockchain. Moving Ethereum assets ( say Tether on Ethereum ) will cost what is called a gas fee for making the transaction, while other transactions in terms of Defi cost the user Ethereum no matter what coin they are using. Everything defi and whatever smart contract project a developer makes, will cost the user a little bit of ETH.
Decentralized finance isn't something I've gotten into myself, but I see the gains I could have made by providing liquidity for these decentralized finance platforms, and it's as insane as what I've done on my best days trading.
In terms of moving wealth from A to B, Ethereum is cheaper and faster than Bitcoin and is often the end users choice for cashing in and out. In my opinion Ethereum is better to use than Bitcoin and it really is the 2nd most transacted coin for cashing in and out of the space.
I should have clarified, I mean efficiency in the statistical sense given all predictions are estimations of value.
The question that any serious Analyst has to ask themselves is how can I confidently make an estimation within the market? Naturally the answer to this is that it is a matter of information. I can make a set of observations and then estimate future value, where the validity of that estimation is correlated with the validity of the available information a long with the inferences I make about it.
The importance of efficiency is this, it informs you how much information is necessary to make an estimate. In other words, it informs you of how much information is necessary to predict the value of an asset.
So, some people say that BTC is going to 250USD, others say 50USD is guaranteed, and even more think it is going to be 100USD.
Who is correct? How can they justify their estimates? Can they justify their estimates? That is a matter of efficiency.
So when someone says X is going to price Y my immediate response is how do you know that? If they then give me reasons they are now conveying the set of information they used to make the estimate. Next, my thought naturally becomes is that enough information to make the estimate X is going to Y?
Most often it is not.
To expand on this further, there is the notion of market efficiency which is an application of this concept across markets. The greatest analysts in history asked a fundamental question, can you predict anything at all in the context of markets? To answer the question they knew it was a matter of efficiency.
The conclusion for some is that markets are not predictable because they only way because statistically if all information is accounted for and acted on then the number of observations to make an estimate of value converges to 1. That means you only need a single observation to make an estimate of an assets value. The issue is that the observation is the intrinsic value of the asset which is the very thing you are trying to predict. That is in a perfect world.
I don't believe the world is perfect, hence the market is not 100% efficient thereby not all information is priced in. This means there is value to abstract and there is an estimate you can extract a return from.
The reality is that some people actually take markets very seriously and will hunt down information so that they are the ones that have a estimate that meets the information standard to be profitable. Most others do not. It is from the latter group the former group extracts returns and this is because the former group uses the optimal amount of information to make a trade while the latter mistakes noise for information.
So my key point is this, the Crypto market is a different animal in so far as efficiency is concerned.
Technical analysis is a single space of strategies that not everyone believes in and in all reality given track record of indicators they have good reason to no believe.
After drawing on charts and monitoring indicators I'd argue the track record for technical analysis are extremely high, as I do see transformations between support and resistance on a consistent basis across various assets.
One aspect to technical analysis is the fact that there are millions of investors that use it, in the grand scheme that plays a role in which direction the market is moving. In Bitcoin's case, if it falls down another 4K, there will be a huge number of investors buying which will trigger another run up for a new bottom, regardless if an investor thinks TA works or not, it's working simply because it's being used.
Studies show that technical analysis is profitable during some periods and unprofitable during others.
It's not a matter of does technical analysis work, it is a matter of when does it work.
When can I actually rely on the information presented by some indicator? At what frequency does it present information? At what frequency does it make noise.
TA works when respected, the problem Is I see some traders use it and it alone or use it a long with assumptions about some eventuality. Often this does not involve an actual estimation and usage of valid information but instead involves ignoring when the indicator is wrong and only paying attention to when it is right, essentially there is a confirmation bias that over hypes the profitability of most indicators.
Lastly, I am well aware of the the 'self profiling prophecy' concept as a means to justify why TA works. However, it only explains why TA can work not when it does. To answer the latter question you must understand its frequency of success and correlate it with a cause.
I personally use statistics and optimization to trade so that I can actually quantify returns and risk a long with overall probable success over any frequency of trade.
In short, it is not at all the same.
For instance, you cannot model derivative returns the same way you can returns from spot trading.
It isn't necessary to implement spot trading to make gains on cryptocurrencies, Bitcoin Futures are available, same with Ethereum now I think, though I wouldn't recommend doing them as I don't invest toward Futures.
My point here is that the information necessary to make a spot trade and a futures trade lets say is different this is not only because the trades are fundamentally different but also because the markets you are making the trades in our fundamentally different.
Relative Strength Index, Moving Average, MACD what have you, those indicators are feedback for the present time, however you want to slice it, they are useful, and while not all of the market will use any tools but rather invest on what they are bullish on, there are those who will, and it matters.
It does matter.
