Fundamental Analysis

Fundamental analysts study anything that can affect the tokens value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company’s proposed solution.

Importance of Performing Your Own Analysis

For traditional investments such as stocks, fundamental analysis entails evaluating the financial health and viability of a company according to its financial statements. If the numbers look good, we can be confident that the company has good fundamentals and we can, therefore, invest in it. Performing fundamental analysis for cryptocurrencies, however, is radically different since there are no financial statements. Why? Because:

  1. Cryptocurrencies are not corporations, but rather representations of value or assets within a network. Its viability is not based on generating a revenue, but rather directly depends on the participation of the community (users, miners and developers). Each cryptocurrency is a manifestation of the different applications of Blockchain technology, and are usually decentralized;

  2. The crypto space is in its infancy stages, and almost all of the cryptocurrencies are in development stages. Which means that there are limited uses cases in the real world currently and therefore, a lack of track record to show for.

Thus, fundamental analysis on cryptos must be performed with a different methodology. Given the complex nature of cryptos and their underlying technology, it is even more important for us to engage in research to assess the viability and potential of the coins. This ensures that we make better investment decisions and are kept in the loop of things. But more importantly, a good understanding of a coin’s fundamentals allows you to form your own opinions and have your own stand, which is rare in the crypto world due to its complexity.

However, do not worry if it all seems too complicated! We’ve created a comprehensive and easy-to-understand guide to help you. Let’s begin!

Finding The Right Sources of Information

Knowledge is power. In order to assess a coin, we have to first know where to get the key sources of information from. Here is where you should get the information from:

  1. Coin’s White Paper
    A detailed proposal by the development team which outlines the purpose and mechanics of the coin. This represents the main source of evaluating the fundamentals of the coin. You should always read the coin’s white paper before investing. The drawback is that it can get very technical given the use of technical jargon and concepts that are hard for an average Joe to comprehend.

  2. Coin’s Discord Channel or Blog
    This represents the official and main channel of communication of the core development team. Join their Discord channel and view the interaction of the development team with the community. Ask questions to get more information on the coin. You should also follow the updates given by the developers in their official blog.

  3. Community Forums: Reddit/Bitcointalk/Steemit
    Forums are a great way to understand the coins better, as well as the sentiments surrounding the coin. You can find simple definitions of certain concepts or easy-to-understand analysis of coins from forums, as the community is well-informed. The diversity of thoughts allows you to grasp the mechanics of the coin far better, especially if you’re not technically-inclined. If you’re not familiar with the technical jargon, a good tip is searching for your query together with the term “ELI5”, which stands for “Explain it to me like I’m 5 years old”.