Feb 17, 2023
Discover the 10 Steps of Fundamental Analysis for Crypto Investing
Fundamental analysis is the process of determining the intrinsic value of a given asset, with the goal of deciding whether the asset is overvalued or undervalued. This type of analysis is particularly important when it comes to cryptocurrency investments, as these assets do not have the same historical data as traditional markets. As such, investors need to look at a different set of factors to determine the fundamental value of a project before investing. Here, we outline 10 steps for sound fundamental analysis of crypto assets.
1. Read the White Paper
The white paper is the document that gives an intentional, 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. It’s important to read the white paper carefully to get a full understanding of the project.
2. Assess the Claims of the White Paper
Be skeptical when reading the white paper, as there have been cases of falsified information. Ask yourself some hard questions and get complete answers before investing. Are the tokens really distributed the way they promise? Are they meeting the roadmap 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
It’s important to identify competing projects and examine existing projects this new one might replace, if successful. Smart investors are looking to see if this project is better than others or not. According to some industry sources, nearly 40% of cryptocurrencies that were listed in 2021 no longer exist, so it’s important to be careful when investing.
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? If there is no team, look to the developer community and find out if the project has a public GitHub.
5. Look at On-Chain Metrics
On-chain metrics are available by looking at data on the blockchain. This data can be pulled from websites or APIs and can include transaction count, transaction value, active addresses, fees paid, hash rate, and staking. All of these metrics can give insight into the health of the network and its potential for growth.
6. Look at the Tokenomics
Invest in projects that create useful tokens; otherwise, the token may not have utility in the marketplace. It’s important to determine 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 and Liquidity
It’s important to look at the financial metrics of the token associated with a project, including market capitalization, trading volume, and liquidity. Market capitalization gives insight into the growth potential of the network, and trading volume and liquidity measures how easily a token can be bought and sold.
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, so it’s important to look at sentiment and the number of active users.
9. Marketing
The team behind a project needs to actively market its token in order to differentiate itself from the crowd. It’s important to look at how the team is marketing the product, if they have a dedicated marketing team, and if they are increasing market share or not.
10. Test the Core Product
If the core product is available, it’s a good idea to test it out. This is especially true for decentralized global software platforms, as a functional, secured digital network technology will demonstrate how the platform actually works. Knowing this can help inform a potential investing decision.
By looking at the right set of factors, traders can determine the fundamental value of an underlying project before investing. Cointelegraph Markets Pro provides market-moving data to help inform investment decisions, and it’s important to remember that cryptocurrencies are volatile investments and carry significant risk. Consult your financial adviser before making financial decisions.
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.
