How to Analyze Crypto Markets Using Fundamental Analysis

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Fundamental analysis is crucial for traders. It helps them make informed decisions on when it is best to buy, sell, or hold crypto.

Unlike technical analysis, which involves examining price movements, trading volume and other indicators, fundamental analysis takes a different approach. Instead, it looks at the factors that drive the price — such as the economy, market reports or how the project is managed.

Fundamental analysis removes emotion from the process. It follows the philosophy that the market may have underestimated or overestimated a cryptocurrency’s value, and a correction will eventually happen. So, the objective is to determine whether the asset is overvalued or undervalued.

This requires conducting thorough research on the project to understand all the available information about the coin, including its use cases, the team behind the project, its community, the vesting schedules and more.

Let’s look at how this works in practice.

1. Read the white paper

Whether it is for buy-and-hold investing or active day trading, it is critical to read the project’s white paper. This document gives a detailed overview of a project. A good white paper explains:

• The project’s goals
• The use cases and distribution
• The team’s vision
• The technology behind the token
• Plans for upgrades and new features
• How the token provides value to users

2. Assess the claims of the white paper

One thing I’ve learnt in crypto is to always be skeptical because the people behind projects can lie or sell half-truths.

It’s important to ask some hard questions and get complete answers before putting your money into a project.

Some questions to consider:

• Are the tokens really distributed the way they promise?
• Are they meeting the road map expectations?
• Are they inventing a problem just to solve it?
• Are there any red flags?
• Do the goals seem realistic?

3. Look at competitors

According to reports, nearly 40% of cryptocurrencies that were listed in 2021 no longer exist. A lot of projects fail.

Scrutinizing a project’s white paper reveals the use case the crypto asset is targeting and the problem it is trying to solve. But you should assess whether or not that use case is, in fact, viable and wanted.

Furthermore, check competing projects and examine existing projects this new one might replace, if successful. Smart investors are always looking to see if this project is better than others or not.

4. Examine the team behind the project

A project is only as good as the team behind it. The people offering the project must have the right skills to make it work.

Some questions to consider about the people behind any project:

• Have they worked on other reputable, successful projects in the past?
• What are their credentials? Are they experienced?
• Are they reputable members of the crypto community and blockchain ecosystem?
• Have they been involved in any questionable projects or scams?

If there is no team, look to the developer community. Check out their Github to see the number of contributors and activity levels. The more consistent development activity on a project, the better.

5. Look at on-chain metrics

On-chain metrics are available by looking at data on the blockchain. The data can be pulled from websites or APIs (e.g. on-chain analysis, data charts and project reports).

Some of the data worth considering:

• Transaction count: Measures the activity taking place on a network.
• Transaction value: Measures the value of the transactions
• Active addresses: More active addresses mean traction
• Fees paid: Indicates whether the demand for block space is growing or shrinking
• Hash rate: A higher hash rate indicates a healthy project. Thus, it is more difficult it is to successfully mount a 51% attack
• Staking: The amount staked at a given time shows the interest level in the project

6. Look at the tokenomics

Invest in projects that create useful tokens. Otherwise, the token may not have utility in the marketplace.

In addition, if the token is useful, it still needs to be determined how the market will embrace it. This will help you make sense of the token’s price movements and profit from opportunities on an ongoing basis.

Some questions to consider:

• Is the token useful?
• How do people get the token?
• What is the inflation or deflation rate?

7. Market cap, trading volume and liquidity

This refers to the financial metrics of the token associated with a project, including:

• Market capitalization: This is calculated by multiplying the circulating supply by the current price
• Trading volume: This indicates whether a token has enough liquidity
• Liquidity: This measures how easily a token can be bought and sold

8. Community

When a community is behind a project, it tends to help the project’s token appreciate in value. Memecoins such as Dogecoin, for instance, have skyrocketed in price due, in part, to social media excitement.

A community that is backing a coin is a powerful catalyst. Consider the following few questions:

• Is the community active and excited?
• Are there a lot of shilling accounts?
• Is sentiment good?
• Are there plenty of developers?

9. Marketing

Currently, there are 20k plus cryptocurrencies investors can choose from. That’s a lot of competition.

The team behind a project needs to actively market its token in order to differentiate itself from the crowd. This is now harder than ever to stand out.

In addition, as more tokens enter the market, established cryptocurrencies are struggling to retain market share. So, the team must actively build brand awareness, get customers and retain customers to improve sales and profits.

Some questions to consider before investing in a project:

• Is the core team marketing the product well?
• Do they have a dedicated marketing team?
• Are they increasing market share or not?

Are there tools to make analyzing charts easier?

Yes. Charts and articles can also make it difficult to see what’s happening across the whole crypto market at a glance. Refonte Infini can help you visualize where the industry is right now in a simple and accessible way.

Our scientific trading bots offer price analysis, volume, percentage changes over a period of time and other indicators to help you make informed decisions. It is a good idea to stay plugged into as much crypto news as possible to guarantee that you’re getting the bigger picture.

Sign up for free to try our Scientific Trading Bots.