Just looking at the price candle chart of a cryptocurrency is not going to tell you much. Looking at these charts in search for shapes seems a bit of black magic to me.

So, I started looking at how more expert investors study a new cryptocurrency. And I found something.

We have the 24h Volume which describes how much value has transacted in the last day. Then we have Market Capitalization. Or to put it simply Price * Numer of units of a given currency.

The theory goes that if an asset is exchanged more frequently, its value should increase. Because there’s a limited supply, there is also more competition to get that asset.

If the market capitalization increases more than the 24h volume in the same day, it means there is market speculation. The asset is overpriced compared to its actual value.

It can happen because there’s an euphoric hope the asset will appreciate in value. Or it’s an indicator of a price spike which is not sustainable. It’s an indicator that someone is pumping the price in short time, buying large quantities, to then sell it all shortly after, causing the price to crash.

Stellar’s 24h Volume and Market Cap compared to other cryptocurrencies on Decryptoray. 6th of September 2018.

There’s a way to understand if the growth of the transaction volume and the market cap is ok-ish. Compare them with other cryptocurrencies, like Bitcoin, Ether and other ones in your portfolio.

This will not save you from all the evil in the crypto world. But at least, it will tell you if you’re in a price peak and that the price will be highly volatile.

Until next time.

PS: if you want to compare volume and market cap as explained in the article, I am personally building a tool called Decryptoray. Feedback welcome!