What is Cryptocurrency Fundamental Analysis ?

Fundamental analysis for crypto involves a deep examination of the information available about a financial asset. For example, you might look at uses, the number of people who use them, or the team behind the project.

Your goal is to decide whether the asset is overvalued or undervalued. At that point, you can use your insights to find out about your trading positions.

Trading assets as volatile as cryptocurrencies requires skill.

Choosing a strategy, understanding the vast business world, and mastering technical and fundamental analysis are ways to go along with the learning curve.

When it comes to technical analysis, some expertise can be inherited from older financial markets.

Many cryptocurrency traders use the same technical indicators found in Forex trading in stocks and commodities.

Instruments such as RSI, MACD, and Bollinger Bands seek to predict market behavior regardless of the asset being traded.

These technical analysis tools are also very popular in the cryptocurrency.

In the fundamental analysis of cryptocurrency, although the approach is similar to that used in the old markets, you really cannot use the tools tested to evaluate crypto assets. To do the right FA(fundamental analysis) in cryptocurrency, we need to know where their value comes from.


Fundamental analysis

Fundamental analysis is the approach used by investors to determine the “intrinsic value” of an asset or business. Traditional fundamental analysts look at business metrics to see what their true value is. On the other hand, technical analysis is performed to predict future price movements based on the past performance of assets.


The problem of fundamental crypto analysis

Cryptocurrency networks can’t be assessed through the same lens as traditional businesses. We need to turn our attention to different frameworks to assess them. The first step is to identify strong metrics that can’t easily be gamed. This section looks at three categories of crypto metrics: on-chain metrics, project metrics, and financial metrics.


On-chain metrics

On-chain metrics are those that can be observed by looking at data provided by the Bitcoin blockchain. We could do this ourselves by running a node for the desired network and then exporting the data, but it can be time-consuming and expensive. A more straightforward solution would be to pull the information from websites or APIs.

Transaction count

Transaction count is a good measure of activity taking place on a network. As with active addresses, we can’t be sure that there isn’t just one party transferring funds between their wallets to inflate the on-chain activity.

Transaction value

Not to be confused with the transaction count, the transaction value tells us how much value has been transacted within a period.

Active addresses

Active addresses are the addresses that are active in a given period.

Fees paid

Transaction fees are important because they tell us about the demand for space in a blockchain. We could think of them as bids at an auction, where users compete with each other to have their transactions included promptly.


Project metrics

project metrics involve a qualitative approach, which looks to factors like the performance of the team (if any exists), the whitepaper, and the upcoming roadmap.

The whitepaper

This is a technical document that gives us an overview of the cryptocurrency project. A good whitepaper should define the goals of the network

The team

If there’s a specific team behind the cryptocurrency network, its members’ track records can reveal whether the team has the required skills to bring the project to fruition.


Financial metrics

Information about how the asset currently trades, what it traded at previously, liquidity, etc. can all come in handy in fundamental analysis.

Market capitalization

Market capitalization (or network value) is calculated by multiplying the circulating supply with the current price. In theory, it would be easy to issue a useless token with a supply of ten million units. But without a strong value proposition, it’s unlikely that the wider market would be interested in the token.

Liquidity and volume

Liquidity is a measure of how easily an asset can be bought or sold. An illiquid market means no buyers are willing to make the trade. Liquidity acts as an indicator of the market’s interest in a prospective investment. It can be measured in a number of ways, including trading volume.

Supply mechanisms

Some coins reduce the number of new units they produce over time, making them attractive to investors that believe the demand for new units will outstrip their availability. Other critics argue that it disincentivizes the use of the coins/tokens as users opt instead to hoard them.




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