A Cheat Sheet for Performing Fundamental Analysis on a Crypto Project in 15 minutes — Part 1/3
PART 1/3 —INTRODUCTION AND MARKET CAP
The crypto market is a hotbed of innovation, grand plans and project launches. While this “move fast and break things” ethos has been shown to have the potential to create a lot of value for investors, the low barrier to entry when compared to traditional businesses brings with it a plethora of poorly conceptualized projects and straight up scams.
The process of true fundamental analysis in the crypto markets is very poorly understood by most market participants and as such has led to a lot of avoidable losses and heartache for many.
In this thread we aim to give you a quick overview of what to look out for before investing your hard earned money into any crypto project — with just 15 minutes of work.
FULL FUNDAMENTAL ANALYSIS
In an ideal world, you would have all the information to hand before making any investment decision. In practical terms that isn’t always possible.
In our experience, a full fundamental analysis of a crypto project will take anywhere from 50–100 hours of work in total depending on the complexity of the project itself and the market segment it operates in.
Of course the amount of time required is also predicated on those doing the research having the necessary experience and skills to perform the analysis in an efficient manner, otherwise it would take far longer.
Having access to full and impartial reports is the ideal scenario but this isn’t always possible and you’ll often need to do your own research.
We understand that it isn’t practical for most people to put in potentially weeks of work before investing in a project.
So in this thread we want to lay out how you can do 15 minutes or less of research to find the “minimum effective dose” of information before deciding to invest, or not.
PROJECT OVERVIEW
You should start by checking out the details of the coin on:
Sometimes info won’t be available there but usually it is. If not check:
or the various DeFi tools available for new project details.
Now let’s see what information to pay attention to.
MARKET CAP
Have a look at the market cap (MC) Although there is no single agreed definition, coins are usually split into Large Cap, Mid Cap, Small Cap and Micro Cap coins (cap being short for “capitalization”).
The exact definition doesn’t really matter, what matters is understanding where the coin lies in the market, and what that generally means for you as an investor or trader.
LARGE CAP
Usually MC > $10BN
While obviously USDT is meant to be entirely stable, when discussing other Large Caps these coins tend to be the most established, least risky and most stable coins on the market.
While a microcap coin can move 30% in 5 minutes and nobody even blinks, if BTC moves 3% in a day the whole world panics.
Liquidity is usually the highest on these coins, with all but the biggest retail orders having the ability to be filled quickly and with minimal slippage.
MID CAP
Usually MC >$1BN and <$10BN
A Mid Cap coin is relatively established but tends to be more volatile than a Large Cap, and the coins that fall into this category change more often.
This means they often have better upside potential than Large Cap coins but with that comes an increased downside risk.
Liquidity for all but very large orders is still generally good and they can work as a diversification investment to take better advantage of macro trends as they will usually follow the same trend but have far larger moves % wise than the Large Cap coins, giving you better returns on your investment.
SMALL CAP
Usually MC <$1BN and >$100m
A small cap coin usually has less history in the market, less traction and a higher risk of failure than mid or large cap coins.
The liquidity is generally still reasonable and most individual retail investors won’t struggle to get orders filled with minor slippage.
Price action will often move quite wildly, especially at the lower end as single big orders can move the market by a significant amount.
MICRO CAP
Usually MC <$100m
These coins are usually relatively new to the market.
They are the riskiest category but because of that, tend to be the most profitable.
It’s in this category that the 100–1,000x coins start and early investors can make life changing returns on.
However the downside risk is the highest in this category, so while it is the most desirable in terms of upside potential, it is the most important one to do fundamental analysis on as Technical Analysis alone is unlikely to give a clear picture due to lack of liquidity.
In this category liquidity can be low and even smaller retail investors will need to accumulate and sell carefully to avoid major slippage.
Understanding where the coin you are researching falls in terms of the overall crypto market will give you a clearer understanding of how the price is likely to move, how easy it will be to buy/sell and what a feasible risk:reward ratio is for your investment.
In PART 2 we will explore the Circulating/Max Supply, Trading Volume, Website and Explorers.
We will look at what these are and why they are so important to understand before making your investment.
Keep notifications on to be informed as soon as we post!
