Cryptocurrency Market Analysis Part II: Fundamental Analysis

What is cryptocurrency fundamental analysis?

As stated in the first article in this series, Fundamental analysis is a method of evaluating a security in an attempt to assess its intrinsic value(it is the perceived or calculated value of a financial asset), by examining related economic, financial, and other qualitative and quantitative factors. This forecasting method allows investors to predict the price of cryptocurrencies in the long run. Those investors who use this analysis method, need to analyse all the available information and analyse all factors that may affect the movement of cryptocurrencies within large timeframes.

Fundamental analysis is mostly used to determine possible long term impact. Investors apply this forecasting method once they want to get the general picture of any asset (Example: Ethereum, Bitcoin) value.

Aspects of the cryptocurrency fundamental analysis

Let’s discuss where to get the right sources of information and what fundamental analyst looks out for in general

Demand

This aspect allows investors to understand whether a coin will be interesting to traders and investors in the future. Some ways of determining demand for a particular coin are:

  • Community forum: such as Reddit, etc, give you a broad idea about investor and stakeholder sentiment towards the coin.
  • Also, what message are media channels conveying? This also gives you a general picture of people’s sentiment towards the coin.

White paper

White papers are well-constructed proposals outlining the purpose and mechanics of the project. This constitutes the main source of evaluation of the coin as well as what they seek to achieve with the development of the coin. You should read a company’s white paper before investing. The downside of white papers are that they might be heavily worded with technical jargon and concepts which may be difficult for the average Joe to grasp. One way is to join their community and ask for clarification on the technical lingo. (for example, Ethereum white paper)

The project’s social channel or blog

This provides the official and main communication channel of the coin’s development team. Join the channel and see the development team’s interaction with the community. Ask questions to get more information about the project. You should also follow the updates from the developers on their official blog.

The Coin’s Current situation on the market

It is important to understand the number of traders and investors driving the trading volumes as this will allow you get a better grasp of whether the coin is used as a short-term speculative financial instrument or it looks promising in the long term.

There is nothing bad in speculations as short-term traders contribute to liquidity. However, they may disappear one-day leaving investors one on one with their coin. The more people are involved in a coin, the more this coin is in demand.

Information about founders/developers

The team behind a coin can tell the promise the coin holds. If the team of developers or founder is a renowned expert in the industry,  this will influence the price movement of the coin and vice versa.

Community attitude analysis

This method seeks to evaluate the attitude of users and their activity. Every coin has its local community, which consists of holders, interested persons, developers and the others. Positive communication between members of the community about the coin will have a positive impact on the price of the coin. However, negative comments could lead to the price decline of the coin.

Those are some of the methods that may be useful when analyzing cryptocurrency. There are many others that you may take and adapt in your own strategy. The fundamental analysis allows traders and investors to find interesting cryptocurrencies that are undervalued currently but may be in demand in future. We hope this gives you the foundation to build on.

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David Omomia
David Omomia is an analyst at Quidax. He is passionate about blockchain's role in the evolution of financial systems.

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