How to Use Fundamentals Analysis to Make Smarter Crypto Investments

While many new cryptocurrency investors scramble to learn the ins and outs of technical analysis, some of them actually forget that there is such thing as fundamentals analysis as well.

Likely the appeal of technical analysis is that it can seem like magic to identify patterns in a chart, but the fact is that if you’re looking to make a long-term investment, then a fundamentals analysis is equally, or even more important than a chart evaluation.

What does fundamentals analysis mean?

When you analyze the fundamentals of a particular asset, cryptocurrency or not, you are trying to pull out the merits. As an investor, you’ll be spending a good deal of time researching the project’s offering, their team, their future technology and many other factors that will allow you gauge what their future might look like.

By the time you have completed your analysis, you’ll ideally have a good understanding of how the technology of your chosen coin or token will function and evolve. It’s also wise to have a good understanding of competing projects in the space so you can be sure that the blockchain project that you’ve chosen is really the best choice.

There’s rarely ever one company in a sector or niche, and it’s a good idea to familiarize yourself with all of them. This can help you to not be too attached to one solution, and it can also help you to identify any potential problems in your first choice before you’ve committed any money to it.

What kinds of things should a fundamentals investor be looking at?

When doing your research, you may want to break it down into several sections. You should also keep in mind that while a project may be lacking in one or even more of these sections, that isn’t an immediate sign to toss it aside.

Many cryptocurrency projects are still in their infancy, and it may take a good deal of waiting before they really start to shape themselves. If you can see a project moving in the right direction to rectify their problems, then it could still be a very good deal.

Technology or product

What is the purpose of your chosen project? Every cryptocurrency has a reason for existing, and as a fundamentals investor your first question will likely be, what does this coin or token do? Who would want to use it? In most cases, new projects are less of a currency, and they are more of an advancement in blockchain technology.

While there’s nothing wrong with something that is purely a currency, the fact is that there are so many cryptocurrencies now, that one that has no other features other than to be used for financial transactions would need some serious benefits to survive.

When you choose a coin or token to invest in you should take a while to become familiar with their proposed product or service to evaluate exactly how it works, and if there is a demand. Potential investors should ask themselves who would use this solution and if it is a significant improvement over existing services.

Community

Technology is important, but the community surrounding a project might be even more important. Without the right push, no project can succeed, and in the world of cryptocurrencies, a lot of that push comes from the community that has gathered around a particular project, goal or service. Even blockchain companies need a dedicated community, and it will be in your best interest as an investor to evaluate this following before you decide to join it.

Fortunately, the internet makes this very easy, and these communities are often very public. Investors can usually find all the information they need here by visiting places like Reddit, Twitter, Discord, Telegram or BitcoinTalk.

Almost every project will have a presence on several of these sites, where you will be able to quickly judge their community outreach. Is their audience engaged with their project? How do people feel about it? You should be able to quickly draw a conclusion here on the public opinion of the company or currency.

Team

Next, you should focus on the team behind the asset in question. Most of the time this information is freely available on the website, and you should be able to get a good idea of who is behind the work that is going on here. This is usually true whether this is a blockchain company or a community platform.

Take a moment to look over the team, their expertise, credentials and the contributions that they’ve made. How is the team’s work progressing? Are they meeting their deadlines? Do they have a well thought out roadmap? What kind of goals do they have? All of these are important questions that you should be able to answer immediately.

Investors should keep in mind that community funded and developed projects may progress a little slower than a company owned blockchain project. Sometimes these developers and team members are not paid, and they can’t dedicate the entirety of their time to the project.

Some of these projects may also have teams that are very sparsely staffed, and this can create a problem if one or more members decide to leave. Investors should be sure to note whether or not a removal of certain staff members would cripple or destroy the project.

Marketing

Every project needs marketing regardless of size, and every coin or token should have a marketing budget of some kind. When looking over the project introduction and the white paper, it should be immediately apparent what the marketing efforts and possibly even the budget are.

If you can’t find this information, then it may be a good idea to ask about it. This is very important, and if there are no plans in place here, then your investment could falter very quickly.

Don’t think that fancy ICOs are immune to this either, many of these are lead by very inexperienced teams that while they have lofty goals, they actually have no idea how to get them off the ground. Buyer beware and establish where the marketing funds are coming from first.

Coin or token evaluation

While there are a ton of projects out there that are very exciting, many companies have started using cryptocurrencies as a glorified crowdfunding space. A lot of these platforms essentially have released a token that provides no real use case. This is a serious problem for investors, who could find that their assets have no growth potential other than pure speculation.

Before making a purchase, investors should establish exactly what the use case for an asset is. Why would people buy this token? What would they use it for, and does the use case justify using it over an existing solution?

The second part of this puzzle has to do with the coin supply. If you’re approaching investing from a pure price appreciation perspective, then you’ll need to take this into account. Part of the reason that Bitcoin has achieved its beastly price tag is due to the limited supply. A coin or token that has an available supply of a billion will have a much different future.

Pricing and market potential

The long-term chart price is also an important factor in determining whether or not you should purchase a particular asset. While some might think this would fall under technical analysis, the truth is that fundamentalists are also concerned with price. Ideally, you would be looking for assets which you believe are undervalued, and pricing is a big part of this.

You can approach this from one of two ways. The first is in comparing the potential of future pricing to past pricing. If an asset has tumbled recently, then you could be in a good position to pick up a great deal if it has met all the other qualifications on your fundamentals list.

The second is simply by trying to gauge the future performance of a low-value coin. Do you think that this asset could stand to move up in market cap? Is the value of the coin low in relation to the size of the supply? These could also be determining factors in making a purchase.

In closing, this is nowhere near an extensive list, but it’s a great start to get you going in the right direction for becoming a fundamentals investor. There are of course many other things you should take into account before diving in, but hopefully, this article has helped you to learn how to ask the right questions, and to learn how to identify good opportunities in the cryptocurrency space. It’s important to do your own research and to never jump into any investments blindly.

Fundamentals investing can be a lot of work, but it’s important if you want to be sure that you’re investing in something that will treat you well for the long haul. Learning how to properly evaluate an investment is the first step in cementing your financial security in any space, not just cryptocurrency.