Bitcoin rose 88 percent from Dec. 1 to 19, then fell 23 percent by Dec. 30, a net 44 percent increase for the month. Attention naturally focused on those events, but the important longer-term story is what’s happening within the entire cryptocurrency sector.
The market value of all non-Bitcoin crypto assets rose 153 percent during Bitcoin’s upswing, and 4 percent more while Bitcoin declined, for a return of 162 percent for December to a diversified investor in crypto ex-Bitcoin. But there are more than 3,000 cryptocurrencies, tokens and assets. Each can have communities, networks and tokens that overlap but are not identical. And each has different technical underpinnings and use cases, and none has traditional financial metrics. So, how can an investor make sense of the market?
A mathematical tool called factor analysis can filter out noise. Instead of studying technical indicators like hashing power, block size and supply control, it can identify the user experience factors that seem to be important for prices.