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What is Fundamental Analysis

As a crypto trader, you want to know what causes prices to rise, fall or stagnate.

While markets are not always predictable, with sound analysis, you can often get at least a reasonably good idea of what the most probable scenarios may be.

A good trader knows when to trade. They recognize market trends and identify areas where they can reliably predict what is going to happen next.

But how do they do it?

There are two answers here: Technical analysis and fundamental analysis 

In this article we are going to talk about fundamental analysis 

Fundamental analysis is not at all limited to cryptocurrency – it’s in-built in other types of trading too.

The concept is simple: if you can recognize that an asset has intrinsic value that is out of proportion to its current market price, you can trade based on your analysis and, in theory, make a profit.

You should be aiming to identify projects you believe have a strong chance of success. Then when you invest and the team proves its capabilities, other investors should notice and the price action should be favorable.

That’s fundamental analysis. You are researching your investments to determine their future value.

It works the other way too. If you research an asset that has a big market cap, you may determine that the asset is highly overvalued. That’s fine, and happens often.

You can in fact trade to make a profit when assets drop in price. This is called shorting.

You will often find situations where fundamental analysis plays out just as you would expect.

If you can recognize the future potential of a project, or realize that the project is presently undervalued in the market, you can profit.

Fundamental analysis also comes down to smaller details too. In 2017 it was very trendy in crypto to rebrand a token and give it a new name and logo. A price increase would usually follow a rebrand.

However, over time this stopped having an impact.

Traders need to be able to recognize how fundamental changes like this are going to be received by market participants. In many cases it doesn’t matter how you feel about it, it matters how the market is going to feel about it.

Little changes can cause a big difference. Always think about:

  • What changes are happening?
  • How is the market is going to react?

Of course, fundamental analysis is about more than just markets reacting to changes. Realizing the potential future value of assets is key.

Most cryptocurrency projects aren’t like traditional companies. You don’t have mounds of data to sift through like you would with traditional stock investments.

Since crypto is in its infancy, it is highly speculative.

There are several factors to look out for when analyzing an investment:

  • Target market of the coin
  • Competitor comparison
  • Team
  • Roadmap
  • Releases/development
  • Partnerships
  • Demand, tokenomics and utility
  • Status and active users
  • Whitepaper
  • Community and reviews
  • Real world use case
  • Price history and age
  • Liquidity and volume
  • Market cap
  • Regulations

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