Crypto traders and investment firms are now using alternative data to gain valuable insights and make faster and smarter trading decisions. But how do they get a deeper understanding of the market and its trends with alternative data? Read on to learn how crypto investors are leveraging alternative data for better crypto market predictions.
What is Alternative Data?
Alternative data is data that is not sourced from traditional means. It includes data collected through different non-traditional sources such as satellite imagery, web scraping, and social media platforms. In financial settings where we blend traditional banking with crypto, alternative data helps investors devise trading strategies, predict market trends, and move share prices. Some examples of alternative data include:
- Comments made on social media
- Weather forecasts
- Credit card transactions
- Data collected from IOT (Internet of Things) sensors
This kind of data is available, if not always immediately accessible, and has the power to alter investor opinions and influence market trends.
Why is Alternative Data Important in the Crypto Market?
Cryptocurrencies are a relatively new asset class which is why there is a limited amount of data to examine their trading patterns and behavior. Traditional data sources such as financial statements cannot efficiently analyze cryptocurrencies like Ethereum and Bitcoin. Data collected from alternative sources such as web scraping and social media sentiment can provide highly helpful additional data that may not be available through traditional data sources.
Moreover, the volatile nature of cryptocurrencies makes it difficult for traders to use conventional data analysis techniques. Data used in traditional financial markets may not provide accurate information as the crypto market differs from traditional finance in terms of price actions and instability. In today’s data-driven world, tax flow sheets, tax filings, or other financial statements are not enough to analyze market sentiments, making it crucial for investors to rely on non-traditional sets. Hence, proactive traders and investors realize the importance of alternative data for better crypto market predictions, financial analysis, and in-depth insights into investment assets.
Benefits of Using Alternative Data for Better Crypto Market Predictions
Alternative data gives investors and traders greater confidence and knowledge in making better judgments and making profitable trading strategies. Here are some benefits that alternative data provides to cryptocurrency investors and traders:
Collect relevant and valuable information about the market through extensive data sources:
Crypto and blockchain data sources are unorganized and fragmented, so traders have to dig into multiple informational sources just to learn about a specific crypto asset and its current status. Even then, the data gathered can be irrelevant, incomplete, or inaccurate in assessing the true value of a cryptocurrency. Moreover, since crypto assets have low data sources available, the already available information is circling around, making it difficult for investors to predict and make informed decisions.
Alternative data fills this knowledge gap by collecting information from an extensive list of sources not found by traditional means. This includes assessing social media and forums for public opinion, collecting information from community forums such as Reddit, analyzing media stances, and checking roadmaps and other unstructured data sets. These are all valuable insights that help traders in creating an effective trading strategy, gauge the actual value of an asset, and make a profit even in volatile times.
1. Save time and resources spent on market research
Crypto investors must be attentive to trading patterns as price changes occur every single second. Therefore, alternative data provides the best sources for conducting crypto market research. It does not only help in getting out useful sources of data, but it also takes on the workload of researching crypto assets. By using alternative data, traders have more time and energy to work on higher-level and planning trading strategies rather than wasting time on real-time market research that sometimes is not even useful.
2. Anticipate market trends and potential market shifts before time
With alternative data, traders can analyze market sentiments, social media sentiments, and community opinions, which allows them to uncover crypto market trends and predict price movements faster.
In order to take advantage of profitable chances before the rest of the market catches up, traders use analysis from alternative data sources. It can offer possible short-term indications for traders to execute trades before price fluctuations hit the market.
3. Identify risks with predictive power
It becomes crucial for traders to identify risks and prevent them before it is too late. The crypto market is highly topical, and being aware of risks can help navigate a constantly evolving market. Alternative data analytics help traders in measuring momentum by enabling them to identify potential risks. Traders can use web scraping to monitor cryptocurrency exchanges and identify potential risks. For example, if trading volumes suddenly drop on a specific exchange, this could indicate that traders are losing confidence in the exchange, which could lead to a sell-off.
The predictive power of alternative data is based on real-time analysis of various data sources. This not only helps in identifying risks before the loss, but it also gives deep insights into market patterns and behavior.
Investors need to leverage alternative data for better crypto market predictions in order to benefit from this highly unpredictable market. Alternative data help gain a more profound understanding of the market and predict future prices based on facts and figures usually unavailable through traditional data sources.