What Does Fundamental Analysis Mean in Crypto?

People often hear terms like “fundamental analysis” and “technical analysis” when looking for cryptocurrency projects to invest in. Your investment decisions will be much better if you know what these types of analyses are and how to use them.

How Fundamental Analysis and Technical Analysis are Different

First, let’s talk about terms. The goal of fundamental analysis (FA) is to look at the most important, or “basic,” parts of a project. What does he promise, who is on the development team, what has been done so far, and how is the market? We need answers to these and many other questions. Technical analysis (TA), on the other hand, looks at how prices change in patterns and compares them to market data from the past to figure out what might happen in the future. But this is a subject for a different article. Now that we have a general idea of what we are interested in, let’s look at what information you will need for fundamental analysis and where you can find it.

Project

The best place to start fundamental analysis is with the project’s main idea. What are the goals and benefits that are said to come from the new asset? Is it money, a token you can use, or a digital collectible? You can find the answers to these questions in a white paper, also called a draft paper.

Even though there isn’t a standard format for a white paper, it’s good if it’s long and has a lot of technical details that explain what the project is all about, but it should also be written in a way that anyone can understand. A red flag is a white paper that says things that don’t make sense or are impossible to read. Usually, this document is posted on the project’s official website.

Here is the best place to start your research. All of the kinds of information we’ll talk about here should have resources on the website or in other places. If something is missing or you can’t get certain information, you should be careful. A site that looks nice and is run by professionals doesn’t mean anything. It’s easy to make a good website these days.

Project Document

It’s important for developers to make information easy to find and to be honest. Another important sign is whether or not the project can use ready-made functionality. For example, it’s much better to have a test network that works than to just have ideas and a plan of action that starts next year.

In fact, if you have a version of the product that works, you can judge what it will look like right now. Is it a copy of a system that already exists but has a lot of bugs, or is it something new and perfect? Your investment choice should depend a lot on how you answer these questions.

Team

After reading the design document and looking around the site, it’s a good idea to learn more about the people who are working on the project. Each important participant needs to be shown and have a way to get in touch with them, even if it’s just a link to their social media profile. These are well-known facts, but it wouldn’t hurt to remind yourself of them: you need to make sure that the project leaders are real and that their experience matches what they say it is.

In fact, if you lend someone money, you’ll want to know not only their name but also how to get in touch with them. You don’t have to do a full audit of everyone on the team, but you should still check on the key players. How have they done in the past? Find out about the projects they’ve worked on in the past. Does the person jump from one shady project to another (though he won’t say that), or did he take part in projects that worked and were successful? It’s a big deal.

Community

If the project is real and meant to be shared, it often brings together a group of people who support it. It could be a project forum, a subreddit, a Telegram group, or something else. They are easy to find because they are usually very active. Then you should read what everyone writes. In an ideal world, most people in the community should be interested, but they don’t have to be die-hard fans. Also, they can usually explain why they are interested in the project. It would be best if they talked about new ideas instead of how to get rich fast.

Industry

Even if everything looks good in all the previous categories, it would be smart to look at the project in the context of the industry as a whole. Does it work with the new asset? Is it directly competing with anything? Probably, if it’s meant to meet real needs. He wants to be the best in what way? A quick analysis of competitors’ strengths and weaknesses will help you figure out how realistic the plans for a new project are.

The Bottom Line

There is no test that can give a 100% guarantee that a project will be successful. There are always risks when you put money into new technologies. But fundamental analysis is a way to separate the wheat from the chaff and figure out the risks without trying to hit the sky with your finger.