How to Make Smart Crypto Investment Decisions Using Data Analytics

New Web3 investors will need AI data analytics to navigate this new industry. Here's how to use it to make better, smarter crypto investment choices.

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By Masha Prusso

Opinions expressed by Entrepreneur contributors are their own.

Most people fail to grasp the importance of data analytics when it comes to cryptocurrency. The phenomenal rise of Non-Fungible Tokens (NFTs), distributed ledgers and cryptocurrencies have had numerous advantages for the global marketplace.

At the same time, the sheer rate of growth is proving hard to keep up with. Even people at the cutting-edge of cryptocurrency are finding it problematic to deal with the rate of innovation. The NFT market alone had a growth rate of 38,000% in 2021 as compared to 2020.

This is where Web3 data analytics comes into play. In the same manner that tools are available in the legacy trading arena of fiat currency products, similar tools need to be made available in the newly established cryptocurrency markets.

The following are some reasons why data analytics are actually essential to Web3 trading and investment — they are a pivotal key to the new global marketplace that is being built on distributed ledgers.

Related: What You Need to Know About Ethereum's Role in Web 3.0 and the Metaverse

Reason #1: A rapid rate of change

Within legacy markets, change and innovation are less evident. This is due to stringent regulations that are in play around various industries like energy, housing, finance, healthcare, etc.

While this stabilizes the market, it stifles growth and prevents real change from occurring — ultimately leading to wealth centralization. The largest percentage of new millionaires are made during times of crisis. This is because rapid change signals an opportunity for those who can take advantage.

Web3 data analytics provide this opportunity. These analytics can track and monitor the large influx of new NFTs and new tokens across multiple blockchains. This allows for real-time insights into what is actually happening in the markets. This further allows traders to spot real trends before they happen.

It's simply not possible to track this rate of change without using deep data analytics that use AI and machine learning components. We could soon be entering a machine-to-machine economy with sophisticated blockchains (known as "Tangles" or "DAGs"). Data analytics are needed to monitor these transactions and to generate meaningful insights.

Related: 3 Ways to Build Sustainable Wealth in the Metaverse

Reason #2: Increased reliance on social media

Social sites like YouTube, Reddit, Twitter and Facebook are prime sources of information for determining coin evaluation. The price of Dogecoin rose by 50% due to a tweet from Elon Musk, and many coins rise or fall based on such endorsements. At the time of this writing, Solana is currently doing well after endorsements from Kevin O'Leary and Robert Kiyosaki.

Social media platforms are also the main avenues for marketing and advertising new crypto projects. "Shilling" is even now a common term in the crypto markets, with job opportunities for Telegram/Discord "professionals" willing to shill a particular coin (meaning to hype it up consistently so people remain interested).

Analytic tools can help to sort out real and false activity on social media which can lead to a genuine rise or fall in a given coin over the short, medium, and long term. Much information is available on these mega social media platforms, awaiting correct sorting and classification, which can only be done through Web3 data analytics.

Related: A New Frontier: Lessons Learnt From Exploring NFTs, The Metaverse, And More

Reason #3: Avoiding Web3 scams

Currently, the cryptocurrency industry runs on hype and hysteria, by and large. And it's quite easy to fall prey to a scam. A common scheme is to take an existing coin and "shill" it. The scam artists do not do any work, they simply promote an existing coin, marketing it on multiple media channels. Investors act on this false information, and when the coin hits a certain price the scam artists sell their share, which they obtained at a much lower price.

This is one of many types of scams in the crypto markets (too many to go into in any detail here). A powerful investment tool backed by data analytics will prevent newcomers from becoming a victim of the many forms of criminality.

It's imperative that people realize that a large proportion of new coins are either scams or have no long-term viability. People only hear about the profits made from a select number of coins, while the ones that fail are rarely mentioned (unless they are very large, like the $60 million Anubis DAO scandal).

Investment tools powered by Web3 analytics are arguably the best way to gain protection in a market known for its lack of investor safety. A Web3 toolkit can provide simple due diligence protocols to indicate if a given coin or project is unsafe.

Related: 7 Ways to Protect Yourself in the World of NFTs

It's already possible to make smart crypto investments

Thankfully, the tools offering deep data analytics to make informed Web3 investments are already available. One example is Defy Trends, a comprehensive toolkit that empowers people to make data-backed crypto and NFT investment decisions. It can be likened to a Bloomberg terminal for crypto and NFTs. The toolkit aggregates millions of data points into easily-understood indicators that allow you to get a holistic view of the market in one place.

The millions of people who are right now entering the crypto space do not understand it. Defy Trends and other Web3 analytic frameworks will generate the insights necessary to make informed decisions, instead of hoping and praying for a coin to go up based on rumors and hearsay.

Ultimately, this is the power of data analytics applied to the Web3 investment markets, and its importance is only going to increase as this market continues to expand.

Masha Prusso

Head of PR

Masha Prusso is head of PR for Polygon, a former Olympic snowboarder and a Berkeley Law student.

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