Follow me, you will benefit.
⚠️ Unfortunately, this topic 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 #تداول_العملات_المشفرة
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 overlook 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 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 must 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 'trending' on social media like X or TikTok.
Influencers or communities create significant interest in it without real technical reasons.
This leads to an unjustified rise in price, and is called 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 liquidity (Low Supply & Liquidity)
Some currencies have a low supply in the market or low trading volume,
Any simple buying movement has a strong impact on the price, causing sharp and unnatural rises.
4️⃣ Fear and greed emotions (FOMO & Greed)
When seeing a significant rise, investors enter out of greed, which increases demand further.
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 inflate the price and then suddenly sell to make profits, leaving others to lose.
Okay, after we learned 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 currencies.
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 an 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 greater the utility of the currency, the greater its potential value.
4️⃣ Comparison with similar projects (Comparative Analysis):
Compare the currency with other projects that offer the same service:
Who is technically stronger?
Who has a larger community?
Who has stronger strategic partnerships?
5️⃣ Calculate the price-to-user or revenue ratio:
In some projects, you can analyze the financial data or the number of active users and link it to the market value to get a more accurate estimate of fair value.
‼️ Important reminder:
Fair value is not a fixed number, but an estimate based on available data.