The sheer number of assets in the crypto world can be overwhelming and confusing. Fundamental Analysis is a vital tool used to understand an asset’s intrinsic value. Here’s how it works.
What is fundamental analysis (FA)?
Fundamental analysis or FA is a method used to determine an asset’s intrinsic value by looking at different internal and external factors. These include reputation, competitors, team, advisors, social presence, marketing, tokenomics and distribution, sector health, and market capitalisation, among others.
Fundamental analysts believe that an asset’s potential future value is determined by more than just its historical performance. FA considers micro-and macro-economic factors that can affect a project’s performance.
It is essentially the process of researching all aspects of a company, using the information gathered to determine its value and growth prospects.
How is it used?
Fundamental analysts look for assets that are not correctly priced by the market and are trading higher or lower than their intrinsic value, as this presents an opportunity.
Stock market analysts traditionally used FA, but it is necessary when looking into any investment especially crypto.
Fundamental analysis vs technical analysis
Fundamental Analysis looks at the broader picture. It differs from Technical Analysis (TA) which considers only price, looking at historical trends and data to identify future opportunities.
FA aims to determine an asset’s actual value by considering all aspects. TA predicts future price action by looking at past trends.
Each method offers its own particular benefits. For example, Fundamental Analysis is considerably more useful when looking at high growth investments (such as crypto) as previous price trends are almost useless if the asset has 100X’d in a year!
Example FA research process
An example research process may include the following steps…
Throughout the process, note anything interesting in a document to check back on later. Make sure to highlight any questions or red flags that come up, as these are vital to check!
Research the project online (on Google etc.), and check for any independent research articles (articles written by anyone but the team behind the project), and any other relevant information. A good tip is to type in the assets name and go 5 pages deep into Google, and read anything that’s interesting.
Read through all links on the project’s website.
Analyse the Whitepaper, paying close attention to the tokenomics and distribution. If these aren’t good you can rule it out as an investment!
Read through the project and team’s Twitter pages. Read what others are saying about it, and check Telegram and Discord channels.
Check the wallet holders (make sure no one person owns too much of it, to avoid whale manipulation).
Check out the team and their history (as well as how much of the crypto they hold & how much they have sold).
Research the crypto’s partnerships and backers.
Check LunarCrush, news websites and deep dive on Google (try different keyword combinations and search 5-10 pages deep).
Go over the notes made, clean them up and make them logical, then go over any red flags, search Google, or reach out to the team or community to get answers if you can’t find any online.
Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.