Whatever investment one decides to venture into, there are always inevitable risks involved. Crypto investing, being one of the ventures considered to be risky due to the high volatility nature of digital currencies, as an investor, you can either gain or lose money easily. This is where fundamental crypto analysis comes in; to give a more accurate prediction of market trends and increase chances of making a fruitful investment.
Mycryptoparadise always seeks to give you every bit of information you need, from news to useful market information. This article will explain what crypto fundamental analysis and how you can use them to your advantage.
What is Fundamental crypto analysis?
Fundamental analysis of cryptocurrency involves examining all factors that encompass an asset’s performance. This ranges from external, internal, qualitative, and quantitative measures, among other disciplines.
Due to the unstable nature of cryptocurrencies, fundamental cryptocurrency analysis is critical in discerning its market position. It evaluates its correct current and future value of any crypto asset. With this, investors and other key market players can easily make conscious and intrinsic decisions to withhold or sell their assets.
A company does not issue this kind of trade or a corporation whose previous data cannot be easily tracked, e.g., getting data from a central bank in case of FOREX trading. A question arises; how then can you determine the value of the cryptocurrency?
How to determine the value of cryptocurrencies
Cryptocurrencies majorly operate based on the virtual market. Therefore, their prices are primarily influenced by the market prices and external factors, although internal factors are not withholding. Below is a list of that can be used to carry out fundamental analysis that you need to know.
Economic analysis It seeks to determine how effectively the economy is operating and how much profit it is remitting.
- Industry analysis
This is an assessment tool that is used to analyze the actual situation present in a market. It ranges from market size covered by bitcoin in cryptocurrency space, the demand and supply elicited by the currency, to the competition available in the market.
- Company analysis
This incorporates the necessary information about an organization against which investors can measure, attribute, and predict the future of the organization’s products and services based on its events, history, goals, etc.
The use of the above tools depends on the metrics and variables present to the analyst type. Hence, a financial analyst whose concern is deducing the cryptocurrency trade’s profitability level will opt for the economic analysis method. Therefore, their examinations may focus on earnings per share of the bitcoin, price to earnings, and other factors.
Here are some of the fundamentals that can apply to cryptocurrencies under industry analysis;
Target market – Every created product or service has a market size. Hence, lately, corporations know their customers and prefer niches or segments compared to large markets due to ease of operation and higher growth rates than large markets. For example, the global digital currency market size stood at USD 754.0 Million in 2019 and is projected to rise by 11.2% by 2027. Bitcoin has the largest market at 68%, followed by Ethereum at 13%.
Competition – For the efficient growth of any company, regulated and fair competition is crucial. Depending on the number of competitors in the industry, conducting a SWOT analysis against them helps you evaluate your product against theirs and know your product’s uniqueness and therefore act on bettering it.
Tokenomics – In all fields, demand and supply are the main factors responsible for controlling prices. However, demand is determined by utility. Therefore, Cryptocurrencies have to evaluate whether the utility is sufficient in driving the current demand and future demand to meet the supply.
Market capitalization – Cryptocurrencies with large market caps have a smaller growth margin rate than those with small market cap rates. This is because a market cap considers the currency’s supply and calculates the actual value on its basis.
Factors based on company analysis include:
Road map – Just like all organizations have strategic goals, objectives and direction to achieve them, so do cryptocurrencies.
Teamwork – any company’s success depends on the knowledge and skills adequacy employed by the management and the staff. Therefore, cryptocurrencies with staff and management members with vast knowledge in executing their task are very likely to prosper.
Status – The positioning and the establishment of a cryptocurrency in the economy is vital in its growth. Therefore, each crypto should align their products to not clash with other crypto products with a higher market position to reduce its market value.
Developments and releases – The previous performance or the history o an organization are critical in influencing a would-be investor’s decision. Crypto with a reputable history is healthy and therefore attractive.
Other factors based on economic analysis include:
Liquidity and volume – How often a cryptocurrency is open for trading is vital in making this analysis. Moreover, the amount of return on interest attached with a trading unit is essential in determining the vitality rate and demand. Regulations – A cryptocurrency project that consistently considers its country of operation’s rules and orders has high chances of having its operations in control and thus assuring its value’s stability.
White paper – It is a detailed technical document that outlines the technicalities or the small details of the project. In layman terms, it is the business plan of a cryptocurrency and therefore plays a huge part in influencing investors’ decisions concerning a crypto investment.
Price history and age – Owing to the complex intricacies involved in cryptocurrencies, many of them have been launched only to collapse shortly. The crypto’s consistency and longevity imply more maintained value and, therefore, useful.
Investors seeking to get involved with cryptocurrency ought to perform further research and learn all the key terminologies and information applied to increase their chances of success in the industry. Just like in gambling, there is no sure-fire method to make money. If venturing, traders are advised to be always careful and trade wisely.
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