Feb 17, 2023

Discover 10 Steps to Crypto Fundamental Analysis for Profitable Investing

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In the ever-evolving world of cryptocurrency, investors must be prepared to make informed decisions when it comes to investing in digital assets. Fundamental analysis is the process of finding the intrinsic value of an asset, with the goal to determine whether the asset is overvalued or undervalued. Without the historical data required to evaluate legacy market assets, crypto assets require research that includes investigating its use cases, its network, the team behind the project, vesting schedules, and more. Here are 10 steps to help traders determine the fundamental value of an underlying project before investing.

1. Read the White Paper: The white paper 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: Be skeptical and ask hard questions before investing. Are the tokens really distributed the way they promise? Are they meeting the road map expectations? Are they inventing a problem just to solve it? What are other people saying about it? Are there any red flags? Do the goals seem realistic?

3. Look at Competitors: Scrutinize the use case the crypto asset is targeting and the problem it is trying to solve. 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 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? Have they been involved in any questionable projects or scams? What if there is no team? Then look to the developer community.

5. Look at On-Chain Metrics: On-chain metrics are available by looking at data on the blockchain. 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. In addition, it needs to 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: Some of the most important analysis is about the financial metrics of the token associated with a project, 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 can have a significant impact on a crypto asset’s price action. 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 the Core Product: If the core product is available, test it out. This can 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 platform until these issues are addressed.

By looking at the right set of factors, traders can determine the fundamental value of an underlying project before investing. Cointelegraph Markets Pro delivers market-moving data before this information becomes public knowledge, allowing users to make informed decisions. Cointelegraph is a publisher of financial information, not an investment adviser. Cryptocurrencies are volatile investments and carry significant risk including the risk of permanent and total loss. Past performance is not indicative of future results. Consult a financial adviser before making financial decisions.