⚠️ Unfortunately, this issue is overlooked by many and is a major reason for the losses of many traders ⚠️
⚠️ Today's topic is very important for you as a trader ⚠️
Many traders and investors buy currencies as soon as they hear or read that it is a reputable currency with an active team.
But they ignore something very important, which is determining the fair value of the currency against its current price.
📊 What is the fair value of the investment asset and how do you determine it to avoid buying at high prices?
Determining the fair value of any digital currency is an essential part of fundamental analysis, and it depends on comparing what the project offers with its market valuation.
How can I know the true value of the currency?? 🤔
Why do some currencies rise above their fair value?
Before we know the methods of determining fair value, we need to understand why some currencies rise significantly and unjustifiably.
The reason is due to psychological, behavioral, and technical factors, including:
1️⃣ Speculation and media hype (Hype & Speculation)
Currencies often rise due to promotion or "trends" on social media like X or TikTok.
Influencers or communities pump a lot of interest into it without any real technical reasons.
This leads to an unjustified rise in price, known as a price bubble.
2️⃣ Lack of awareness or research (Lack of #DYOR)
Many investors enter the market based on recommendations or rumors, without analyzing the project in depth.
This leads to pumping money into projects that do not deserve their current valuation.
3️⃣ Limited supply and low trading (Low Supply & Liquidity)
Some currencies have a little supply in the market or low trading volume.
Any simple buying movement has a significant impact on the price, causing sharp and unnatural rises.
4️⃣ Feelings of fear and greed (FOMO & Greed)
When seeing a significant rise, investors enter out of greed, which further increases demand.
The phenomenon of "fear of missing out" (FOMO) contributes to rapidly inflating the price.
5️⃣ Organized movements (Pump & Dump)
Some currencies are subject to collective manipulation by groups that buy heavily to raise the price and then sell suddenly to realize profits, leaving others to lose.
Well, after knowing the reasons that lead to unjustified rises in some currencies.
Here are ways to determine the fair value of any financial asset:
Determining the fair value of any digital currency depends on comparing what the project offers with its market valuation. Here are some important steps:
1️⃣ Market Cap Analysis:
Calculate market value = price × number of circulating coins.
Compare it with similar projects to estimate whether the currency is overvalued or undervalued.
2️⃣ Compare supply and demand:
Is the supply limited? (like Bitcoin)
Is there increasing demand for the currency due to actual use in the project?
3️⃣ Study the use of the currency within the system (#Utility):
Is the currency used to pay fees, operate applications, or as an incentive for users?
The higher the interest rate of a currency, the greater its potential value.
4️⃣ Comparison with similar projects (Comparative Analysis):
Compare the currency with other projects offering the same service:
Who is technically stronger?
Who has a larger community?
Who has stronger strategic partnerships?
5️⃣ Calculate the price-to-user ratio or revenue:
In some projects, you can analyze financial data or the number of active users and relate it to the market value to get a more accurate estimate of the fair value.
‼️ Important reminder:
The fair value is not a fixed number, but an estimate based on available data.
