Feb 17, 2023

Uncover Hidden Crypto Value: 10 Steps to Fundamental Analysis

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Fundamental analysis is a process of evaluating the intrinsic value of an asset to determine whether it is overvalued or undervalued. Traders use this information, along with technical analysis, to decide if they should invest or trade the asset.

In the cryptocurrency space, the approach to fundamental analysis is slightly different than the traditional market, since there is no history of earnings reports or profit and loss statements. Instead, investors must conduct research to uncover information about the asset, such as its use case, its network, the team behind it, vesting schedules, and more.

Here are 10 steps to help investors conduct a thorough fundamental analysis of any asset before investing or trading:

1. Read the White Paper: The white paper gives an intentional and detailed overview of the project. It explains the project’s goals, use cases and distribution, the team’s vision, the technology behind the token, and plans for upgrades and new features.

2. Assess the Claims of the White Paper: It’s important to ask 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?

3. Look at Competitors: It’s essential to identify competing projects and examine existing projects the 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. It’s important to research each team member to determine if they have the right skills to make their project work.

5. Look at On-Chain Metrics: On-chain metrics can be pulled from websites or APIs specifically designed to inform investment decisions. This data 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’s important to determine how the market will embrace the token, thereby making sense of the token’s price movements.

7. Market Cap, Trading Volume, Liquidity: It’s important to consider 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.

9. Marketing: With the continual advent of new tokens on the market, established cryptos are struggling to retain market share. It’s important to evaluate how the team behind the project is marketing the product.

10. Test the Core Product: If the core product is available, it’s a good idea to test it out. This will help inform the potential investing decision.

These 10 steps can help investors evaluate the profit potential of any asset before investing or trading. With the right research and analysis, investors can make informed decisions that can lead to profitable investments.