Key Takeaways: Cryptocurrency Fundamental Analysis
- The concept of cryptoanalysis
- Technical and fundamental analysis in brief
- Detailed fundamental analysis by taking multiple metrics into account
- Project Metrics involve whitepaper evaluation, analysis of the target market, tokenomics, and more
- Insights related to financial metrics like liquidity, volume, and market cap
- On-chain parameters like staking, addresses, and transactions
With Bitcoin continuing its upward movement, you might have already started cursing yourself for exiting too soon. Or, some of you might be adequately aggrieved to miss out on yet another entry point. Especially when the prices took a tumble for a while. No doubt, finding the right entry and exit can get overwhelming at times. Unless you plan on investing some time in cryptocurrency fundamental analysis!
But first, stop lamenting over Bitcoin! There is still plenty of fish in the sea. Also, the inherent Bitcoin volatility, a condescending statement lurking in the shadows, or any other relative global event might soon get you the right price to enter and exit, depending on how you have planned out the course.
Cryptocurrency Fundamental Analysis: How to Pick the Right Player?
As mentioned, cryptoanalysis is extremely vital, if you want to find the right entry and exit point. But then, selecting the right cryptocurrency is often a bigger concern as compared to charting the movement of the one you are already invested in. This brings us to the broader realm of cryptocurrency analysis, which is further segregated into the technical and fundamental analysis.
Overwhelmed already! Well, analyzing the crypto-space isn’t as complicated as people make it to be. In simple words, crypto fundamental analysis helps you pick the right player with an eye on the future or rather an investment whereas technical analysis lets you gauge the trends, price movements, cumulated volume, and other metrics that might directly impact the price, in a given time frame.
Point to Note: As the crypto-space is new, it is advisable to spend more time on fundamental analysis, at least if you are a beginner. While crypto technical analysis paints a more nuanced picture with mathematics, statistics, and probabilities to help, there is no alternative to fundamental analysis for cryptocurrencies as it tells you all about the vision, tokenomics, market cap, and almost everything relevant.
Cryptocurrency Fundamental Analysis: The Basis
Every asset class, including cryptocurrency, has a specific value at a given point in time. And it can either be north or south of its actual value. Fundamental analysis lets you identify the overvalued and undervalued prospects. And, in the process helps you take better investment calls, by avoiding enticing yet catastrophic options.
How does Crypto Fundamental Analysis work?
Cryptocurrencies are berserk movers. It might be the case that one fine morning you find your investments sitting pretty with a 30 percent uptick, almost tempting you into exiting. Or, there might be days when the coin literally plunges down 20 percent, making your question your investment strategy in the first place.
Well, this is what crypto-space is all about. Uncertainties!
However, if you plan on investing in crypto, rather than trading in it for a short while, the erratic value shifts shouldn’t bother you much.
An investor doesn’t go in blind. Due diligence becomes important when it comes to identifying coins that are fundamentally strong and have the potential to grow. This is where fundamental analysis becomes the most important cog in your crypto wheel, letting you identify and differentiate coins based on Project Metrics, Financial Metrics, and On-Chain or rather Blockchain Metrics.
Broader segregations are all good but you would want to know the nitty-gritty as well. So let us dive right into this crypto fundamental analysis explainer.
As much as financials attract you, they can wait. Unlike any other asset class, the first step towards knowing a cryptocurrency is to look at its development side, involving more of the qualitative aspects. Better termed as project metrics, the considerations can be enlisted as follows:
A cryptocurrency is rarely just a financial instrument. More often than not, it serves the market well as bankable units, NFTs for moving digital assets around, secured transactional units, and more. Therefore, it is necessary to gauge the target market and ensure that the existing space isn’t already over-saturated with similar possibilities.
Wait a while before you make condescending assumptions about the bland whitepapers. For sure it can be an effort to read through all of the technical stuff. But it gives the ultimate sneak peek into the technology, existence of full and partial nodes, scalable support when needed, token supply, distribution, and everything else that outlines the crypto player.
Fundamental analysis also involves digging deep to know the brains behind the concept. If the player has seasoned minds on board, investing seems like a safer bet.
Now that you are aware of the target audience and technical description of the concerned crypto coin, you can evaluate it further to analyze the number and type of competitors. How the project stands up amid the existing level of competition, often gives out a clearer picture of its future.
Project ambitions, newer modifications in the pipeline, crypto-halving approach, if any, and other expected improvements might also influence the future for a cryptocurrency. Innovations are fun though, but a lot of it can complicate stuff!
The economics of crypt tokens plays an important role in determining their desirability. This metric involves talking about the mining potential of the coin, overall supply, the total number of tokens to be developed, and the underlying demand.
Once you have taken care of the project details, token arrangement, and technologies, it is advisable to move to the financial metrics— involving the following aspects:
Crypto calculations needn’t be complicated. For instance, the market cap is all about multiplying the entire circulating token strength with the price of each, at any given time. Although the market cap doesn’t take the coin burns and lost keys into consideration, it is still a good determinant when growth potential and network robustness are concerned.
Liquidity, Volume, and Demand
Understandably, you would want to invest in a cryptocurrency with high liquidity. This metric denotes the ease with which the coins can be sold, for a particular price. Plus, the liquidity needs to be matched with higher volumes, which in turn drives the demand up, and the prices with it.
Financial metrics are quite reliable but the way a crypto-player behaves when on the Blockchain, is a completely different issue, altogether. In truth, this part of the cryptocurrency fundamental analysis can get a bit too techy but we would still try and keep it as simple as possible.
Nature of Transactions
Crypto tokens move when they are a part of the Blockchain. But for cryptocurrency to be a good investment, it is important to have higher transaction counts, which showcase security-specific robustness, and even higher transaction value, which determines how the nodes are run and how transactions are authenticated.
It is important for the cryptocurrency to have several active nodes, both full and partial. A large volume of active addresses reveals the scalability quotient of the player. And the frequency of unique addresses determines the trust multiple users are putting on the same.
Often termed as a recurring crypto investment, staking involves locking in holdings for the purpose of block validation! While this approach comes with its share of benefits, the total amount staked across the network is a good metric to consider. And, it reveals the interest of others in the particular player.
Once you grasp each of the mentioned metrics and the associated parameters, you become capable of fundamentally analyzing the preferred cryptocurrencies. Also, when you gain a deeper understanding of the crypto space, it becomes easier to build wealth without veering into followed social media noise and rumors.
FAQs on Crypto Analysis
Q1. How to Analyze Cryptocurrencies?
A1. You can analyze a cryptocurrency by relying on technical indicators. Or, you can focus on project fundamentals or both, for better clarity.
Q2. How to analyze cryptocurrency fundamentals?
A2. For gauging and understanding cryptocurrency fundamentals, you need to have in-depth knowledge of the project-specific aspects. Plus, the financial parameters of a project and its Blockchain whereabouts also come in handy.
Q3. How to technically analyze cryptocurrencies?
A3. Technical analysis requires you to be aware of the price bars. And you also need to focus on price-time oscillators, and the crypto chart, in a specific time frame.
All sorted with Crypto fundamental analysis! Download the app right away and get your crypto journey started, immediately.
P.S: KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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