Fundamental analysis is not limited to cryptocurrency trading. It has already set up its roots with stock trading. Fundamental analysis looks into all the fundamental values which directly or indirectly contribute to the asset’s value. It is crucial to remember in cryptocurrency regard is that the majority of the cryptocurrencies are not companies, they are projects. To evaluate projects which can give us profits, we evaluate projects for their intrinsic values and compare those intrinsic values to the project’s token’s current trading price.
Since these projects are working in a decentralized environment and the prices of the tokens are dependent upon their demand and supply, it is imperative to calculate the usefulness of the project in the long term. This usefulness of the projects is determined by their use-cases and the token’s circulation within the decentralized network. If you can recognize the future potential of a project, or realize that the project is presently undervalued in the market, you can profit. Fundamental analysis’s objective is to find out the future value of the projects based on various factors.
Every project has a target market for which it is trying to address the needs of. Large target markets are not always a supporting factor as the target market can be flooded with a large number of competitors. The market size needs to be analyzed with the number of competitors in the space and the uniqueness the project is offering.
Continuing to the above point of the target markets, fundamental analysis involves analyzing the existing competitors. We should analyze their strengths, weaknesses, features, business models, modes of token circulations, and uniqueness in the products.
Technology on which the project is built the underlying infrastructure which is supporting the project. Investors must look for scalable, secure, and robust technology that has the potential to grow and can support the load of the network.
Roadmap tells what the company’s future plans are. Roadmap is a clear outline laid by the project’s team telling the developments the project is going to do in the future. When we analyze a project, we analyze the success rate of the project’s achieving its milestones and the target market the developments have acquired. Adding to these, the roadmap also tells the vision of the project and how ambitious the team is about the project.
The team behind the project and their experience is one of the most important factors stated by Warren Buffet when he evaluates the projects. The importance of this factor holds equally true in the cryptocurrency projects too. The experience of the team members show if the project is capable of leading in the markets at all fronts.
Look for the partnerships companies are making in its journey. Partnering with multinational organizations is a good sign of the project. This means the project is going to survive for long and the token can undergo a larger adoption.
Tokenomics, in simple words, is the economics of the demand and supply of the token in the network. When understanding the business model of the project, it is important to look at the spaces which are increasing the demand of the token and helping the project make profits. A project with poor demand of tokens and unprofitable business is less likely to survive in the competition. Both will cause the prices of the tokens to tank and bring the project in crisis. Tokenomics also refer to the supply of the tokens and the distribution of tokens within different divisions of an organization. These divisions are, but not limited to, community, marketing, research and development, team, advisors and partners, and reserve fund.
Liquidity and Volume
Liquidity and volume are the direct indicators of a cryptocurrency’s performance in the markets. Liquidity and volume is the quantification of demand and supply of a token. They display the trading activity happening on exchanges.
SOURCE OF INFORMATION
All the information on project’s business model, tokenomics, roadmap, and technology can be found in the project’s whitepaper. One should read this whitepaper with utmost understanding and logics because most of the projects publish exaggerated and sugar-coated details in an objective to collect more funding in the crowdsales.
Social Media Channels
You can keep yourself directly updated Company’s social media channels, community forums, blogs etc. where these projects are conveying their official communications
Public Community Forums
You can learn about public sentiment, discussions, and reviews generated around a project in public community forums like Reddit and Bitcointalk.