Cryptocurrencies have been attracting a lot of young as well as experienced investors in the domain. This is because the domain provides short-term gaining opportunities and thus seems lucrative to such profit seekers. However, before one decides to enter this gamble, it is advised to know the basics of crypto fundamental analysis at least. Since the crypto market can make or break one in a matter of seconds, it is important to understand some fundamental technicalities involved.
Several crypto investment experts often rely on the technical analysis bit of it. However, not everyone can start with such complex indicators and analysis tools. So, it is recommended to begin with the crypto fundamental analysis checklist and sail further into the complexities of it. This article is aimed at providing you with the important points to follow for analysis if making crypto investments is your next stop.
Fundamental Analysis Of Crypto
Before diving into the list of things to consider for crypto fundamental analysis, it is important to know the concept of this kind of analysis better. This concept involves the methods and procedures undertaken to determine the intrinsic value of a digital currency token. This can be achieved through a number of means that include keeping an eye on third-party experience, evaluation of the technology on which the currency is based, and analyzing the crypto market trends.
These steps are undertaken to know the intrinsic value of the crypto and will aid you in the formulation of a better investment strategy and will significantly reduce the risks of losses. Also, it will minimize the possibilities of panic sell-offs when the value drops and prevent getting trapped in the fear of missing out when the price of that crypto skyrockets.
Fundamental Analysis Or Technical Analysis: Which Is Better?
As mentioned earlier, experts in the domain prefer technical analysis of crypto to fundamental analysis. However, where exactly the problem lies is difficult to ascertain. This is because acing in the crypto investment domain needs the usage of both these analysis techniques. Technical analysis involves looking at various charts and predicting future price movements, whereas, fundamental analysis of cryptocurrency focuses on the news and events happening in the real world. Keeping a note of both kinds of information is important in any case.
Price prediction will ascertain the type of approach, bullish or bearish, and real-world events would be necessary to know the immediate effects (if any) on the crypto market. A proper blend of both these procedures will ensure the effective strategy formulation and implementation of it. This will, in turn, aid in maximizing the profit output. However, the crypto trader should consider the ultimate goal that they wish to achieve and then choose which analysis technique to use and how much to rely on it.
Crypto Fundamental Analysis Checklist
We have curated a list of questions to be asked and information to be collected for crypto fundamental analysis before you gamble away your possessions in the highly volatile market. The 8 checklist points mentioned below are advised to be followed diligently as even missing out on one point might end you up in a desert of profits.
Research The Crypto Developers
The starting point of the process of fundamental analysis is researching the crypto’s origin and its developers. This will benefit in understanding the underlying potential of the digital asset you are to consider as an investment. You should have a look at the size of the team involved in the development and whether or not they are skilled enough to provide the best output. Further, you should also make a note of other projects undertaken by them and whether they were successful or not. Here are some questions that are mandatory to be answered at the end of your research.
- Who are the developers behind the crypto?
- Is their previous track record good enough?
- How is the project you are focused on faring currently?
- What qualifications do the developers’ team possess?
- Has the team been involved in any other crypto projects? If yes, how did they turn out?
- How does society look at them? Are they trustworthy or seem fishy?
Stalk Their Social Media Handles
This step is an extension of the former one as a lot of questions mentioned there can be answered by simply checking the developers’ social media profiles thoroughly. You can easily know about their qualifications and past records from there. The two social media platforms to search for them are Twitter and Instagram. The community engagement on their posts will enable you to ascertain the public image created by them and then you can decide whether investing in their crypto would benefit you or not.
The set of questions added in this section are:
- How often do they stay active on social media?
- Do they have a fair number of followers? Are these followers loyal to them?
- Are they genuine while engaging with the community or are they just influencing to push the prices up?
Are there red flags on their profile or posts on social media that might induce a future rug pull?
Research About The Coin’s Technology
Your investment goals can determine whether the technology the crypto is based on is important or not. If you are someone who is looking for long-term investment opportunities in the crypto domain then you should consider the cryptos built on top technologies. This is because they tend to be more stable in terms of price fluctuations compared to the ones built on technologies that are not so sound.
However, if you are aiming for short-term gains or day trading in crypto then you can engage in higher risks in the market. Try investing in the coins following a ‘pump and dump’ trend. In any of the aforementioned cases, it is vital to have basic knowledge of the coin’s technology. This is a key point in the fundamental analysis of crypto as it affects the way you formulate strategies.
The questions to ask yourself while completing this checklist point are mentioned below.
- What obstacles does this crypto overcome?
- What solutions does this crypto provide?
- Are these solutions unique or have been inspired by other existing coins?
- Does the digital asset have loyal community backing or there are chances of it going out of trend in the future?
- Is it a trustworthy and fairly stable currency or does it follow pump and dump trends?
Analyze The Market Trends
The crypto fundamental analysis would stay flat without the inclusion of this step. This is due to the fact that market trends in the crypto market play a vital role in formulating effective investment strategies in the domain. The price actions of various cryptos indicate whether the approach should be bearish or bullish. If the majority of stablecoins are ‘green’ then go with the bullish sentiment and vice versa. In addition, one should check the price movement historical data for the cryptocurrency they might be considering. This is recommended because of the belief that previous price actions can affect future price trends. CoinMarketCap, a leading crypto price-tracking website can be beneficial for this.
One should also connect the current circulating supply and the demand for that particular crypto to predict human reactions and actions toward it. Also, check the 24-hour trading volume to know if people are still interested in trading the coin or whether the crypto is out of trend.
The questions that should be answered after ticking this checklist point for crypto fundamental analysis are mentioned below.
- Is the crypto market ‘green’ or ‘red’?
- What is the crypto’s current circulating supply and demand?
- What are the recent price movements?
- What is the 24-hour trade volume?
- Are any major events scheduled for the future that might affect the price trends?
- Is the crypto part of a bearish or bullish market sentiment?
Study The Project’s Workflow
By studying or reviewing the crypto project’s workflow you will be able to obtain a vast array of information on the same that will aid your trading strategies. It will provide a view of the developers’ future plans and the methods they would implement for achieving their set targets. Keeping up with the project’s roadmap is an efficient way of knowing whether the team is on track or not. It will also enable you to be informed of any important development that might affect the coin’s performance. Fundamental analysis in cryptocurrency is incomplete without proper know-how of how the coin’s technology works, so make sure to tick this point in the checklist.
The questions to be answered after this step are:
- Does the team have an effective plan for the crypto’s development in the future?
- Do they provide regular updates or developments regarding the project’s workflow?
- Is there enough community engagement and input on the project’s progress?
Go Through The Whitepaper
A clear, well-formatted, and well-written whitepaper will provide you with a proper overview of the technology on which the crypto is based, workflow, and the expected use cases. It is recommended to stay away from whitepapers that are ill-drafted, vaguely written, and filled with technical jargon as this is an early signal that the developing team is more interested in making quick profits than working on a sustainable project. Also, this instrument often provides first-hand information that would be difficult to obtain otherwise but will definitely aid in crypto trading activities.
The set of questions to be answered at the end of this step is mentioned below.
- Is the whitepaper well-drafted and simple enough to understand?
- Does it enable you to know the technology of the crypto, its roadmap, and use cases?
- Are there any red flags that point toward the project not being sustainable and just a means of earning a quick profit?
Formulate An Exit Plan For The Crypto Asset
This is one of the most important points in the crypto fundamental analysis checklist provided to you. Formulating an exit plan is difficult yet important. An exit plan means determining when to sell off your crypto investments and how you will do it. It can be based on a specific range of value that you expect the coin to hit in the future, which can be ascertained whether you are having a bullish or bearish approach.
In the absence of such a plan, you might be facing the dangers of holding the crypto investment for longer than required and it becomes valueless. In another case, an early sell-off can deter you from obtaining potential profits. By formulating an exit plan you can avoid emotional influences on your trading decisions that might arise due to the dynamic fluctuations of the coin.
It is also necessary to choose a suitable crypto trading platform for selling or trading crypto. Choose one of the top crypto exchanges as they are more trustworthy. Then filter the best crypto exchange according to your preference of withdrawal and deposit minimal limits or trading fees to be paid.
The questions to ask yourself while devising an exit plan for a crypto asset are listed below.
- What are the targets you aim to achieve through such an investment?
- When would you think of selling or trading the crypto investment?
- Which is the best crypto exchange(s) for you to consider?
Set Achievable Goals And Realistic Expectations
It is highly crucial for a crypto trader to set achievable goals and realistic expectations before diving into the crypto market’s gamble. This is because unrealistic expectations from the industry will lead to targeting unachievable goals, which will result in the use of wrong trading strategies and might wipe off your crypto funds. Also, such goals and expectations will prevent you from being discouraged or dissatisfied when the market is not doing well.
Always remember that the crypto market is the most volatile financial market and will see indefinite ups and downs before it actually benefits you. Therefore, you are advised to maintain a disciplined trading practice to earn profits in the long run. Patience is an important factor too that will determine the final outcome, so be extremely patient while trading in digital currencies.
Ask the following questions to yourself before setting targets and expectations from the market.
- What do you aim to gain from this investment?
- How much trust do you have in the concerned project?
- How much do you expect the developer team to stick with their development outline?
- What are estimations for the crypto’s price movements in the short, medium, as well as long term?
- How much risk are you ready to undertake?
- When do you hope to get returns for your investments?
The crypto fundamental analysis checklist mentioned above is obviously not the complete guide and there is a lot more to take into consideration before investing in crypto tokens. However, these points can serve as a basis and starting point for your journey in the crypto domain. These will also benefit you by diversifying your portfolio.
Diversification of your portfolio is an important achievement that helps in reducing crypto investment risks. While diversifying, you consider a number of assets to put your money in. Therefore, if any one of your investments fares badly then other such stakes will still protect your portfolio from being eroded. This is a vital point to note why investing in this volatile domain as several cryptocurrencies might lose all their value in just a few hours. So, investing in different coins will ensure that your losses are minimized and the chances of making a profit would surely be maximized.
Once the aforementioned checklist for performing fundamental analysis in cryptocurrency is completed, you as a trader will have information that would be more than enough. Therefore, with a better understanding of the domain, you can surely achieve the targets set. However, it is advised to be prepared for the worst as well since the crypto sector is immensely unpredictable.
Winding It Up
Crypto fundamental analysis can seem a complex or difficult task to any beginner trader. However, performing such an analysis is important for optimum trading experience and to ensure that your risks or losses are minimized to an extent. So, remember to stay updated with all the developments in the sector since any change, small or big, will definitely affect the market in some way or the other. Also, make sure that you tick all the points of the above-mentioned checklist before trading.