What is Fundamental analysis of cryptocurrencies?
Fundamental analysis of cryptocurrencies is different than analyzing stocks. Fundamental analysis takes into consideration all the aspects of a coin and its project, from its team to the technology being used. It’s not just about price movements but it also includes things like community engagement and real world use case for a particular cryptocurrency project. In this article we will go over how you can do fundamental analysis of your favorite cryptocurrency or ICO before sending any money into their crowdsale!
Read the Whitepaper
A whitepaper is a document that describes the key elements of a cryptocurrency. The main focus of the document is to provide you with an overview of the project and its goals. It also contains details about how this cryptocurrency works, what it does for users, why it’s different from other cryptocurrencies on the market and so on.
You should read whitepapers carefully because they can help you understand more about an ICO or token sale before investing in them (if you decide to do so). In other words: reading this type of content will give you insights into what makes Cryptocurrencies tick!
Analyzing the founder Team
The founder team of a cryptocurrency is one of its most important aspects, as it affects how a coin will perform in the long run. If you’re interested in buying a new cryptocurrency, you should first look at its founder team and see if they have experience in this field. You can also check their social media presence and reputation as many people like to follow well-known personalities who do good work for society.
You can also check out their network by searching for their LinkedIn profiles or even looking at their GitHub repositories if available. This way you can get an idea about who these people are and where they come from before investing your money into something that could potentially fail miserably due to lack of knowledge on how things work with cryptocurrencies!
Analyzing the Venture Capitalist
Venture capitalists (VCs) are interested in long-term value. They will be looking for a high potential for growth and well-funded projects, with a team that can execute on their vision. In other words, VCs want to see a project that has what it takes to succeed in the future so they can invest their money into it and make money from their investment as well. Of course some VCs also failed badly in 2021. Hence please do you own due diligence.
Analyzing the Roadmap
The roadmap is a detailed plan of the future of a company. It’s important to update it regularly and keep it realistic, achievable and with a timeline that you can meet in your business. It should also include an estimated budget for each stage of development.
The roadmap should include:
- A clear vision for where the founder team want to go in the future (e.g., “We will build an app that makes buying cryptocurrencies easier”)
- A focus on what needs improvement before moving onto something new (e.g., “Our current app has lots of bugs so we need more time.”)
Assessing the Utility of the coin – real world use case
Now that you’ve identified a coin, it’s time to assess the utility of this coin. What is its real world use case? How does it work? Is there a real world application for this coin?
This is where fundamental analysis comes in handy. Fundamental analysis looks at intrinsic value (the price) versus extrinsic value (the purpose of the coin). This can be done by comparing two similar coins or analyzing how well they fit into the ecosystem as a whole. If your crypto has no intrinsic value, then it might not be worth investing in because you won’t see any return on your investment if there are better alternatives out there with better potential returns and less risk involved.
Analyzing Community size and engagement
You can also use this data to determine the overall community size and engagement. For example, if you look at the number of followers on social media and find that there are a lot of people who are talking about cryptocurrency, then it is likely that there would be a healthy community with many developers working on projects. The same goes for developers using their coins as well as users trying out new features or applications built on top of them.
Assessing the Technology
Assessing the technology behind a project is one of the most important factors in fundamental analysis.
The blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.
The technology behind a crypto coin is the blockchain, which is a ledger that records every transaction. Transactions are grouped into blocks, which are linked together in a chain. Each block contains information about the previous block, as well as all the transactions made on the network since its creation.
Bitcoin, Ethereum and other cryptocurrencies use Proof of Work (PoW) as a consensus mechanism where miners solve complex mathematical problems to validate transactions in the blockchain. This requires significant computing power and energy to perform but miners receive new coins for their work.
For whatever coin that you are interested it, do look at the technology behind it.
Analyzing the Tokenomics
Tokenomics is the most basic foundation of every project. It simply means Token + Economics which is the understanding of the supply and demand characteristics of cryptocurrency. These are some of the key things that you should look at before investing:
How many of these tokens exist right now? How many will ever exist? How quickly are new ones being released? Some terms to learn below:
- Maximum Supply – A hard cap on the total number of coins.
- Disinflationary Or Inflationary – this where you get your high APY from for some inflationary projects.
- Circulating Supply – The total number of coins in circulation now.
- Fully Diluted Market Capitalization – The maximum supply multiplied by current price.
Distribution schedule tells you what the currently circulating supply is and the rate at which coins are being created. Distribution takes into consideration how coins are spread among addresses (especially the core team which can have a big influence on value of the token.
A vesting period is a time when a token can’t be sold by the investor or team. It is important to understand how tokens are unlocked. Sometimes high APY may not be good if the core team has no vested interest.
One good place which you can do a good initial research will be https://messari.io/
Analyzing cryptocurrency is different than analyzing stocks
If you’re looking to invest in cryptocurrencies, it’s important to understand the differences between them and stocks. While there are some similarities, they are still distinct assets that have different goals, uses and risks involved.
The first thing you should know about investing in cryptocurrency is that it’s a new asset class—a type of investment that doesn’t exist yet! It’s also not regulated by the SEC like stocks or bonds are; instead, cryptocurrencies operate on their own rules set by their developers (or miners). This means they can change over time without anyone’s approval or input from outside parties like regulators or investors who might want them to stay as-is forevermore—but more on this later…
Cryptocurrencies aren’t backed by real world assets like gold or silver either! Instead they rely solely upon technology such as blockchain technology which provides security for users when making payments using digital currencies such as Bitcoin (BTC), Ethereum (ETH) etc. That’s why many people said that Crypto is Ponzi. But isn’t fiat not backed by anything (perhaps govt who issue it)?
There are many different ways to analyze cryptocurrency and we have only covered a few of them. This is not an exhaustive list, but it should help you get started on your own analysis.