How to do cryptocurrency fundamental analysis

How to do cryptocurrency fundamental analysis

It is natural for a beginner cryptocurrency investor to invest money in a currency that is showing positive trends. This can fetch him profits for a short time, but after a point, he will have to start looking for better options. Like reading in stocks, it’s difficult to gauge a cryptocurrency’s current market value. Then how does one study the fundamentals of a currency before investing in it?

Crypto fundamental analysis comes with strategies that are different from traditional financial techniques. These strategies can help one determine the true value and potential of a currency. The number of cryptocurrencies is growing each day. Not every currency is regulated. Having thorough fundamental research of a coin goes a long way.

Here are 3 major points to consider while doing fundamental analysis

Financial Metrics

Financial metrics are a direct reflection of a currency’s economics. These are quantitative factors that can be easily calculated and measured.

• • Market Cap: The primary financial metric to look for is the currency’s market capitalization.
    Market cap is the multiple of the currency’s unit price and the volume in circulation. Coins with a low market cap show a potential for growth, but a high market cap offers stability.
  • Liquidity: This is basically just the measure as to how easily can one buy and sell an asset. Order book analysis gives a better understanding of this factor and can act as a reliable indicator. The more orders placed to sell or buy a particular currency’s units, the more is the liquidity of the currency. This makes trading the currency easier.
  • Supply: Some analysts also take into consideration the supply of a currency. For example, Bitcoin has a limited supply and is decreasing as time goes by. Some may be in favor of this or some may be against it.
• All these factors are subjective but can sure act as good indicators of a currency’s value.

Project Metrics

These metrics project the development aspect of the cryptocurrency. It gives an idea of how it works and why the currency came about. These factors are mostly qualitative but aren’t difficult to gauge and measure.

The whitepaper is the best device to study the currency. Whitepapers are declarations from a crypto’s developers sharing the prospects of the project, from its purpose to its technology to its future goals. A comprehensive and informative whitepaper is not much to ask for to invest in a crypto coin.

Blockchain Metrics

The blockchain that the currency operates on, can be valuable information. It gives an overview of an asset’s activity and the technological processes it works on. The services and websites that the blockchain is running are vital and direct information to study based on their performances.

A crucial blockchain factor to consider is the hash rate. This indicates the security of the assets. The value of the hash rate tells how fast users can mine a block on the chain. Higher the hash rate, miners have a greater chance to get rewarded for mining. It also suggests that the chain is harder to perform a hack.