Fundamental analysis is a method to analyze an asset class and establish the correct value of the asset. By analyzing the intrinsic factors affecting the value of a crypto asset, you can determine if it is overvalued or undervalued. You can then leverage this analysis to invest in a particular crypto asset. This method can be used to determine if crypto fundamentals are strong and is known as crypto fundamental analysis.
You can look at factors like the white paper, development team, technology, supply, and demand, among others, to establish the correct value of a crypto token. Traditional fundamental analysis mostly depends on business metrics such as earnings per share or the price-to-book ratio, which is how investors value the asset against its book value. In crypto, it also analyzes the website, social media, and development to determine its real value.
How to do a fundamental analysis?
This article has listed some vital factors to consider when conducting a fundamental analysis of a crypto token.
Read the white paper
It is essential to read the white paper of a project you would like to invest in, especially for buy-and-hold and long-term strategies. The ideal white paper will have a vision, goals, use cases, and technology.
The team behind the project
Assess the history and experience of the founders, advisors, and developers of the crypto project. A good team will have individuals with a history of success who have completed the goals of their past projects.
Analyze the competition and market
You should also look at the competition and market of the project to determine if it has a competitive edge over other crypto tokens. They can be analyzed by looking at factors such as user adoption, market share, and brand value.
The technology behind the project
Evaluate the technology behind the project and check if it has unique features for real-world use cases and adoption.
Maximum and circulating supply
The total number of crypto tokens that a company can produce is known as the “maximum supply. Some crypto projects have limits, and others have no cap on the maximum supply. Circulating supply is the number of tokens traded on the crypto market today.
Social media
Check if the project has genuine community and engagement. A project with thousands of followers but fewer likes is not a good investment option as it has low community engagement.
How does fundamental analysis work?
There are a few steps to follow to conduct fundamental analysis, such as research, industry analysis, project analysis, valuation, and decision-making. In research, you gather relevant information about the crypto in question. This may include articles, industry reports, and financial statements. Next, look at the economic and industry trends that impact the value of a crypto asset. This includes macroeconomic factors and industry-related factors such as supply and demand.
Next, evaluate the specific crypto project with factors such as the whitepaper, team, market share, revenue growth, adoption rates, and underlying technology. Then, based on evaluating all the intrinsic factors, determine the correct value of the crypto token and compare it with other tokens to see if it has an edge over them. Finally, use the analysis to make an informed investment decision to buy, sell, or hold the crypto token.
Crypto fundamental analysis benefits
- It focuses more on the intrinsic factors of a crypto token than its short-term price movements. This can help crypto investors determine assets with long-term potential.
- It involves a comprehensive analysis of different factors that affect the value of a crypto token. It provides a thorough analysis of the asset, including potential risks and opportunities.
Importance of fundamental analysis
The crypto market is known to be volatile as the asset class is new. So it is hard to evaluate projects solely based on market sentiment and technical analysis. You can understand the offerings and potential growth of the project by analyzing the vital factors that affect the value of a crypto asset. Additionally, it can help you avoid crypto scams and identify if the project is overvalued or undervalued.
Conclusion
You can gain invaluable insights into crypto projects by conducting fundamental analysis. Apart from this, you can also look at the technical indicators of a project to identify investment opportunities and monitor crypto projects. An ideal analysis of an asset will consist of researching the whitepaper, team, market, and technology, and checking social media and news. To get started, find a potential crypto project that catches your attention and evaluate the above factors to decide if it is viable to invest in.
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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.
