Feb 17, 2023
Discover 10 Steps for Sound Crypto Fundamental Analysis
Fundamental analysis is a process of uncovering the intrinsic value of an asset, with the goal to determine whether the asset is overvalued or undervalued. This approach is used to evaluate legacy market assets differently than cryptocurrency assets, as the latter usually have no history of earnings reports or profit and loss statements. To determine the fundamental value of a crypto asset, traders need to research the use cases, network, team, vesting schedules, and more.
Here are 10 steps to help investors make informed decisions before investing in a crypto asset:
1. Read the White Paper
The white paper is a document that provides an intentional and detailed overview of a project. It should explain the project’s goals, use cases and distribution, the team’s vision, the technology behind the token, plans for upgrades and new features, and how the token provides value to users.
2. Assess the Claims of the White Paper
It’s important to ask some hard questions and get complete answers before investing in a project. Are the tokens really distributed the way they promise? Are the goals realistic? Are they inventing a problem just to solve it? What are other people saying about it? Are there any red flags?
3. Look at Competitors
Scrutinizing a project’s white paper reveals the use case the crypto asset is targeting and the problem it is trying to solve. One should then consider whether or not that use case is viable and wanted. Furthermore, it’s important to identify competing projects and examine existing projects this new one might replace, if successful.
4. Look at the Team Behind the Project
A project is only as good as the team behind it. The people offering the project must have precisely the right skills to make their project work. The white paper should have information about each member of the team, but doing some independent research can be helpful too. Have they worked on other reputable, successful projects in the past? What are their credentials? Are they experienced? Are they reputable members of the crypto community and blockchain ecosystem?
5. Look at On-Chain Metrics
On-chain metrics are available by looking at data on the blockchain. The data can be pulled from websites or APIs — such as on-chain analysis, data charts and project reports — specifically designed to inform investment decisions. This includes transaction count, transaction value, active addresses, fees paid, hash rate, and staking.
6. Look at the Tokenomics
Invest in projects that create useful tokens, otherwise, the token may not have utility in the marketplace. It must be determined how the market will embrace it, thereby making sense of the token’s price movements and allowing investors profit opportunities on an ongoing basis.
7. Market Cap, Trading Volume, Liquidity
The financial metrics of the token associated with a project are also important, including market capitalization, trading volume, and liquidity.
8. Community
When a community is behind a project, it tends to help the project’s token appreciate in value. Social media, for instance, can have a significant impact on a crypto asset’s price action. A community that is backing a coin is a powerful catalyst. Is the community active and excited? Are there a lot of shilling accounts? Is sentiment good? Are there plenty of developers?
9. Marketing
The team behind a project needs to actively market its token in order to differentiate itself from the crowd. Is the core team marketing the product well? Do they have a dedicated marketing team? Are they increasing market share or not?
10. Test Out the Core Product
If the core product is available, test it out. Knowing how the platform works could definitely help inform a potential investing decision. If the platform is hard to use, time-consuming or otherwise creates more problems than it solves, it may be wise to steer clear of investing in such a project until these issues are addressed.
By following these 10 steps, investors can make sound fundamental analysis to help evaluate the profit potential of any asset before investing or trading. Cointelegraph Markets Pro delivers market-moving data before this information becomes public knowledge.
Disclaimer: All investment or financial opinions expressed by MoonLanding Media are not recommendations and are intended for entertainment purposes only. Do your own research prior to making any kind of investment. This article has been generated based on trending topics, has not been fact checked and may contain incorrect information. Please verify all information before relying on it.
