Since the cryptocurrency market’s inception over a decade ago, its value has exploded to a quarter of a trillion dollars. As a direct consequence of this explosive growth, however, digital currencies have long been regarded as volatile and unpredictable. Given that many cryptocurrencies routinely see their valuation swing wildly from one day to another, that association perhaps has some merit. However, as with any financial product, cryptocurrency price movement is almost always preceded by a few telltale signs.
As an investor looking to maximize profits, keeping a watchful eye on these events can help you analyze and even forecast where the market is headed. Let us now take a look at some of the most influential factors to watch out for:
Understanding Market Depth
Most major cryptocurrency exchanges allow you to view the order book for a given trading pair. The order book is a tabular representation of all open buy and sell orders for that asset pair. On most exchanges, buy orders are represented as a ‘bid’, while sell orders are referred to as an ‘ask’. A large number of new buy orders close to the current trading price generally indicates confidence in the token among traders. If the volume of new bids remains steady and surpasses the number of sell orders, you can consider the asset to be undervalued.
