How to Analyze Crypto Token before Investing in it

Investing in cryptocurrency can be fun, rewarding, and profitable. However, since the market is highly speculative, you need to learn how to trade cryptocurrency without spending too much time or money to take advantage of the market. You can start by familiarizing yourself with the prices of the leading digital currencies and the cryptocurrency market cap. Moreover, you should remember only to invest what you can afford to lose.

Don’t let this scare you. Expert investors analyze crypto tokens before investing to mitigate the risks. This means if you want to choose the best cryptocurrency to invest in or maximize your income, you should learn about the three types of cryptocurrency analysis and discover why each of them is crucial.

Three key areas of analysis

Technical Analysis

Technical analysis is one of the primary methods that expert crypto investors use when they want to understand the market forces behind price trends. It involves the study of statistical patterns and trends to identify viable trading opportunities.

The technical analysis chart represents all the past actions of the market participants. This means technical analysis can help users to choose the best cryptocurrency to invest in at any time and make the right decisions in two ways:

  • Psychological: The past trading actions of investors have a direct impact on how they approach future situations. Most individuals pay attention to the price at which they bought their digital assets. If this cost declines, they have psychological reasons to sell the crypto token when it hits the break-even point again.
  • Reflexive: Some technical analysis identifies chart patterns and trends that are common and use the information to determine the best crypto token to buy or sell at a given moment. If many participants follow the same strategy, the chart patterns are highly likely to follow the predetermined outcome, and the trend will be sustainable.

There are three types of trends that you need to understand to conduct an effective crypto token analysis. These are:

  • Uptrend
  • Downtrend
  • Sideways trend

To have the most psychological and reflexive benefits of technical analysis, you should choose an approach that suits your needs. Here are the two core approaches:

  • Top-Down: This is a macroeconomic analysis that evaluates the overall economy before considering individual tokens. Analysts using this approach pay closer attention to short term gains than long-term valuations.
  • Bottom-Up: This approach focuses on individual tokens and not the macroeconomic view. As an investor, you can use it to evaluate digital currencies that appear suitable for potential entry and exits points.

Fundamental Analysis

Fundamental analysis is a method you use to measure the coins or token’s intrinsic value. The analyst assesses the related financial and economic factors to establish a digital asset is undervalued or overvalued.

When conducting fundamental analysis, the investor uses publicly available data to evaluate the asset. For example, one can perform an analysis on a token’s value by considering the economic factors like interest rates, the state of the economy, and the company’s economic well-being the issues the currency.

While conducting fundamental analysis, an investor should focus on the following factors:

  • Qualitative factors: Qualitative fundamental analysis refers to evaluating a token’s value by establishing its exact nature, not the quality.
  • Quantitative Analysis: This refers to an assessment aimed at determining an asset’s worth, mainly as one that the analyst can show in terms of amounts and numbers.

Let’s use Bitcoin to illustrate these aspects of fundamental analysis. When examining the top cryptocurrency, an analyst would consider such factors as unique addresses, hash rate distribution, network value to transaction (NVT) ratio, total transaction value, and miners rolling inventory (MRI).

The quantitative and qualitative analysis, therefore, is the ideal tool for determining:

  • A coin or token’s fair market value
  • A buy/sell recommendation-It can be issued if the market value is higher than the prevailing market price or vice versa.

Sentimental Analysis

The sentimental analysis identifies textual communication’s effectiveness. Several sentimental analyses are relevant to crypto-asset intelligence. The main ones are:

Polarity Analysis: This type ranks textual sentiment in neutral, negative, and positive categories. For example, this method could likely classify this statement, “the stability of the economy has reenergized the entire crypto market,” as positive.

Tone Analysis: In this case, the analysis focuses on classifying the emotions present in a particular text and using the data to forecast the crypto token’s future. Tone analysis algorithms commonly focus on emotions such as:

  • Anger
  • Sadness
  • Happiness

For example, many emotion algorithms will likely notice a high degree of excitement in this sentence, “the crypto token rally is remarkable.”

Greed and Fear are also key sentiment tools that determine what the overall market feels about a trend. The index fluctuates with bullish and bearish trends and can inform a buy opportunity.

Aspect Sentiment Analysis: This analysis tool pays excellent attention to interpreting particular components of a sentence. So, it identifies the parts that impact the crypto token and then derive useful information from it.

For example, in this sentence, “the new developments in sports have the potential to enhance the cryptocurrency market,” the aspect sentiment algorithm will likely focus on the phrase, “new developments in sports.” Through this, the investor will find the information that can impact the value of their chosen crypto tokens.

From the above list of the types of sentiment analysis, we can see the benefits of using this method before investing in any coin or token. However, you should consider this technique comes with a few challenges like subjectivity, contextualization, irony, poor grammar.


All techniques of analyzing tokens have their unique pros and cons. Choose the right type of analysis to make the right investment decision. Your prevailing investment needs should guide your choice.

If you want to analyze crypto tokens based on fundamentals like industry trends and revenue, you could opt for fundamental analysis. You can also use technical analysis to predict price movements by evaluating historical data, mainly volume and price. For textual communication’s effectiveness, you can choose sentimental analysis. Once you understand how to use cryptocurrency analysis tools, you will not struggle to learn how to trade cryptocurrency.