{"id":8883,"date":"2021-07-20T22:14:32","date_gmt":"2021-07-20T22:14:32","guid":{"rendered":"https:\/\/digitalsurge.com.au\/education\/?page_id=8883"},"modified":"2021-08-08T05:56:36","modified_gmt":"2021-08-08T05:56:36","slug":"what-is-fundamental-analysis-in-crypto","status":"publish","type":"page","link":"http:\/\/3.26.50.104\/education\/what-is-fundamental-analysis-in-crypto\/","title":{"rendered":"What is Fundamental Analysis in crypto?"},"content":{"rendered":"\t\t
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\n\t\t\t\u2190 Back<\/a>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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What is Fundamental Analysis in crypto?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t
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Definition<\/h6>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Fundamental analysis assesses an asset\u2019s \u2018fundamentals\u2019 (market cap, utility, partnerships, etc.) to determine whether it is currently overpriced or undervalued and thus a good investment.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Understanding Fundamental Analysis in Crypto<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The goal of fundamental analysis (FA) is to determine an asset\u2019s future value based on whether it is overpriced or undervalued in the market.<\/p>

Based on a wide range of \u2018fundamentals\u2019<\/strong> such as the utility of the cryptocurrency<\/a>, its market cap, the potential for growth in that industry, recent news and the team & partnerships the project has (among many others), investors use FA to cut through the noise and identify an asset\u2019s true \u2018intrinsic value\u2019.
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By finding asset\u2019s that are \u2018incorrectly priced\u2019 by the market, investors can make profitable long-term<\/strong> investment decisions, unlike technical analysis<\/a>, which focuses strictly on historical price data (as opposed to project fundamentals) to identify short-term<\/strong> trading opportunities.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Fundamental Analysis for Crypto<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Fundamental analysis has been used for decades in the world of non-crypto investing<\/strong> where investors take a similarly \u2018qualitative\u2019 approach, looking at things like the financial performance of the company (revenue, debt structure, etc.) and the way employees are managed.

However, in the world of crypto, there is a lack of historical financial performance of a project. While the primary goal of performing a FA remains the same<\/strong>, different factors need to be assessed to determine a crypto project\u2019s true<\/strong> value<\/strong>.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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What are the main factors\/fundamentals to consider?<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The Utility & Use-case<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Ask yourself: What is the purpose of this cryptocurrency<\/a>? Does it solve a real problem or greatly improve on an existing technology? Will the world adopt its use-case?<\/p>

A project\u2019s likelihood of success is directly related to whether its technology\/use-case is something that people and the crypto ecosystem actually wants and needs.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Market Cap<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Market cap\u00a0(market capitalisation)<\/a> is a very useful indicator of the stability<\/strong> and growth potential<\/strong> of a cryptocurrency.<\/p>

It is calculated by multiplying the current price of a coin<\/strong> with the total number of coins in circulation<\/strong>.<\/p>

In general, the larger the market cap (in comparison to other coins), the safer\/lower the risk-reward profile of the investment.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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The Community<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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If a cryptocurrency has real potential, it will likely have a group of people it serves, and thus a solid community around it.<\/p>

The community (miners, developers, supporters and potential users) add value to a coin by adopting its use-case and increasing its overall legitimacy and popularity.<\/p>

Social media sites like Twitter are a good place to assess community presence. Most legit projects have strong communities in online forums like Reddit, Telegram and Discord. Check out our article on how to do your own research in crypto<\/a> for more information.\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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The Team (developers, advisors, partnerships)<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Given the lack of financial history & data of many cryptocurrencies, assessing the core leadership team, the developers, the advisors will play a big role in your decision to invest.

<\/strong>The credibility<\/strong> and the experience<\/strong> of the team behind a project is crucial, and team members should have a solid track record in the industry.<\/p>

Partnerships with other companies, banks and institutions are also a good indicator of how much potential a crypto has to succeed over its competitors.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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The Website, White Paper & Track Record<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Not only should the website be well put together and functional, but it should openly share <\/strong>information about the people behind the project.<\/p>

Additionally, despite a coin\u2019s \u2018white paper\u2019 often being technical, it should give a clear explanation of the coin\u2019s utility, future prospects and underlying technology.<\/p>

While bigger gains come from smaller, lesser-known coins, cryptocurrencies tend come and go. If a project has been around for a long time and has maintained its value, it may have real longevity<\/strong>.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Competition<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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While several similar projects can all have success, there is usually going to be a handful of industry leaders for any given use-case or sector in the crypto ecosystem.<\/p>

When investing in a project, assess the utility it brings to the ecosystem and see if there is truly a need for it and if it has what it takes to outdo its competitors.<\/p>

If there is another similar project that is better or more established, there may be little room for your prospective cryptocurrency to succeed.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Road Map & Vision<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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A good project will have a strong vision, clear timelines and a well-defined road map.<\/p>

While short-term gains can be attractive, the best investments will be around for a long time and will grow your portfolio<\/a> as they develop and evolve.<\/p>

Without a clear vision, mission and a plan for the future, the project may not be able achieve widespread adoption and compete with other similar projects.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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News & Updates<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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What are media outlets and popular names in the space saying about this crypto? What is the general sentiment around the project and its team?<\/p>

Does the project have any major updates and developments on the horizon? This could mean a spike in adoption and a big price increase in the near future.

<\/strong>Regulations also have impact \u2013 if a project is not adhering to laws and regulations of its country, it may never get the chance to succeed. Controversy with governing bodies like the SEC can be a deterrent for investors.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Financial metrics (volume, liquidity, coin supply)<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Trading volume helps analyse a coin in the short term<\/strong>. The 24-hour<\/strong> trading volume of a crypto gives you an idea if there is something substantial behind a recent dip or pump.<\/p>

Liquidity\u00a0is a measure of how easily an asset can be bought or sold<\/strong>. This is important to be able to buy\/cash out at a good price when you want to.<\/p>

Circulating supply vs Total supply should give you an idea of how valuable a coin is expected to become \u2013 only 21 million Bitcoin will ever exist, meaning a single Bitcoin could be worth a lot more than a coin with a supply of 100 billion (like Ripple).<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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On-chain Metrics<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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For a deeper dive, on-chain metrics can be observed by looking at data provided by the crypto\u2019s Blockchain<\/a>.<\/p>

By analysing how things like transaction count, transaction value, the amount staked and the active addresses are changing over time, you can gain behind-the-scenes insight into where a project is at.<\/p>

Note: Keep in mind that there is no one way<\/strong> to perform a FA in crypto, there are dozens of variables which can help you determine a profitable investment. Every person\u2019s analysis will look different \u2013 FA is not an exact science, and the order<\/strong> in which you evaluate a coin\u2019s fundamentals will vary according to what you already know or deem to be most important in a particular cryptocurrency. <\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Technical Analysis vs Fundamental Analysis<\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Performing a fundamental analysis is best for identifying long-term<\/strong> investments. However, if you are looking at deepening your analysis (especially over a shorter time frame), technical analysis<\/a> can help.<\/p>