Investing in Cryptocurrency — Fundamental Analysis Guide

9 min readMay 1, 2018

In this post, we will discuss about the fundamental analysis of investing in Cryptocurrency. Investing in Cryptocurrency can be one of the most profitable and the riskiest investment instruments currently available. Without proper understanding about Cryptocurrency, someone can fail big when investing in Cryptocurrency. If you like my post, follow me on Medium to get more tips for investing in Cryptocurrency in the future!

Cryptocurrency Fundamental Analysis

There are so many technical analysis guide out there. However, trading short term may not be suitable for most people. In such a volatile market, trading Cryptocurrency may consume so much of our time. If you are busy with your work, you might miss the time to buy and sell during trading. Investing in Cryptocurrency for long term gains by picking the right ones and holding it can be a great solution.

Cryptocurrency fundamental analysis is suitable for people who are busy with their work, family, or business. By mastering it, someone can start investing in Cryptocurrency can just leave it aside waiting for the value and price to appreciate.

Investing in Cryptocurrency always starts with a problem. What is the current problems in Cryptocurrency?

High transaction fee.
Many people complain about the high transaction fee in Bitcoin. People argue that with that kind of high transaction fee, it is impossible for Bitcoin to be used as a day-to-day currency replacing fiat currency. That is quite true. If you believe that high transaction fee is a problem, investing in Cryptocurrency that make the transaction fee lower would make sense.
Slow transaction time.
Many people also complain about the slow transaction time in Ethereum and Bitcoin. That’s why so many new solutions that are more scalable are being developed. Investing in Cryptocurrency that allows scalability with high transactions per second would be a good move.
Security of exchanges.
For the past few years, there have been so many Cryptocurrency exchanges that are being hacked. It has caused people to lose billions of dollars. Investing in Cryptocurrency or exchange that solves security issues would be a smart move.

These are just some of the problems that exist today. If you are not investing in Cryptocurrency that can solve those problems, you are missing out.

Here are my rules for investing in Cryptocurrency:

The Cryptocurrency or Token has to serve a big market or solve a real problem. There is a strategy of using benchmark of existing solution. For example, if we look at EOS as a platform, it also allows people to build on top of it like ETH. It means the market is clearly big and it solves the problem of ETH transaction speed that is getting slower. If there is no existing solution, we need to analyze the market separately. Investing in Cryptocurrency with a clear market and solving a real problem is the safest way to get great return.
The market cap of the coin has to be low enough, so that the room to grow is still huge. My rule of thumb is to find Cryptocurrency or Token that is still below $200 million in market cap. If you purchase coins / tokens with already huge market cap (Above $1 Billion), it is harder to get 10x to 100x return. Investing in Cryptocurrency with a small market cap is easier to gain huge return, because we need less money and less investors for the market cap to grow.
The total supply has to be low enough. My rule of thumb is to find Cryptocurrency to watch with total supply of below 100 million coins (hard cap). Even better, with circulating supply of below 50 million coins. I’m not entirely against Cryptocurrency with huge supply of coins.However, as an investor, I think it is easier to make huge gains with low supply coins. We can look at Bitcoin’s amazing growth with its low supply strategy. That’s the reason I try to avoid pre-mine, controlled, centralized options (If you know what those are, put it in comment :p ). Cryptocurrency price is always determined by supply vs demand. When the supply of the coin is low, the sudden surge in demand due to new announcements like development progress and partnership will increase the price of the coins quickly. If the supply of the coin is too huge, even with a huge demand there will still be a lot of traders who dump / sell the coins. Investing in Cryptocurrency with limited supply has proven to be a good strategy, the great example is Bitcoin that has limited supply and can only be created through mining (proof-of-work).

Cryptocurrency Fundamental Analysis: Investing in Different Types of Cryptocurrency

Today, there are 3 types of Cryptocurrency for us to invest in:

Cryptocurrency Fundamental Analysis: Cryptocurrency as a Currency as we know it (Cryptocurrency). Most people know Bitcoin, right? Bitcoin is a Cryptocurrency. It is a currency that is based on blockchain technology, which can’t be manipulated. This is the first type of Cryptocurrency. It’s function is as a store of value and transaction. Best examples for Cryptocurrency as a Currency would be Bitcoin (BTC), Litecoin (LTC), and Monero (XMR). When you invest in this type of currency, you have to understand a few things that people care about currency. What are those? These are some points that have to be considered when investing in Cryptocurrency of this type:

Secure: People would love to make sure they can’t be hacked. That’s the first thing people care about. Because it is a store of value for them.
Against Inflation: Why do most people buy houses / properties / lands and gold? Why do the prices of those assets have gone up? It’s scarcity. Lands and gold are not reproducible commodities, they are limited. Would the price of a diamond so high if it is not rare? When we understand about this, we should consider investing in Cryptocoin or Cryptocurrency that are scarce or limited. There are only 21 million Bitcoins that can be mined in total. We have more than 7 Billion people in the world. This is the reason that Bitcoin’s price has gone up astronomically. People believe in it as a store of value. If you compare Bitcoin to Fiat currency like USD or EUR and all other currencies in the world, banks can always print more money and lend those paper money out to boost economy. (That’s another topic, you should do some research about it!)
Network of users: If you talk about a currency, it has to be accepted by many people to make it valuable. For example, if you create your own “Tommy Coin” and try to use it to buy clothes, would people receive it? Maybe yes, maybe no. Today, many companies would gladly accept Bitcoin and Ethereum as form of payment. That’s a great network of people who use the Cryptocoin to buy and sell. Investing in Cryptocurrency that builds a network of users create network effect, which is an effective moat or barrier to entry. Ethereum is a good example that has successfully created network effect.
Anonymous: Would you like everyone to know whatever you buy and sell? Maybe not? This is where privacy comes in. People would love to buy and sell with Cryptocoin, but they prefer the transaction to be anonymous and untraceable by others. It means that privacy coins actually have really good future in the long run. They can exist together as alternative payment systems.

For investing in Cryptocurrency as a currency, I really recommend to focus on Bitcoin (BTC). The reason is because Bitcoin (BTC) has been battle-tested and proven to be a good store of value considering its growth for the past few years.

2. Cryptocurrency Fundamental Analysis: Cryptocurrency as a Token (Utility Token). Ethereum allows people to build decentralized applications and smart contracts on its platform. Ether itself is also a Utility Token. It is used as “Gas” to pay for the fee of sending Ether and other tokens to an address on the blockchain. The fee is paid to the miners that confirm the transaction. Of course, Ether can also be used as a currency to buy something. People usually use Ether to participate in an ICO (Initial Coin Offering) of a new token that is issued via Ethereum platform.

A simpler way to explain this is to think about the time you bought a Windows software, you are given a “Windows Product Key”. You then need to fill in the secret code in “Windows Product Key” to be able to use the software.

Utility token works like that. So if you want to use Ethereum platform, you have to use Ether. Ether is a fuel for operating the distributed platform Ethereum. It means when you buy and keep Ether, the price could go up when more people need Ether! Makes sense? It’s like you buy and store fuel and sell it to those who want to use their cars. It’s as simple as that. Some examples of utility tokens are Ethereum (ETH), EOS, Nuls (NULS), HAT.Exchange (HAT), Aion (AION), POA Network (POA).

So if you are looking into investing in Cryptocurrency as a Utility Token, you need to make sure that people need whatever the Token can buy! To know whether many people will need it, these are some points that have to be considered when investing in Cryptocurrency of this type:

Usefulness of the platform. Is the platform useful? Think about Ethereum, the price of Ether keeps going up because it enables people to create their own smart contracts. That’s amazing and useful. If you are buying a token from a useless platform, the token is never valuable, it’s like a fake monopoly money. There are so many useful tokens out there that you can invest in.
Scarcity. If the token’s supply is limited, people have no choice but to buy the token from others to be able to use it. So when you want to buy a token, make sure that it is useful and also limited. Limited supply will drive the price up when people need it! Investing in Cryptocurrency with limited supply can give you huge return for the long run.
Users. Will there be many users for the platform? Will the number of users grow over time? When there are more users, the value of the utility token will go up because the users need it. With that, you have to always look at the community that uses the platform. Is the community of users growing fast? Or is it just a community of investors and speculators? It will succeed better when the community of users grow faster.

For investing in Cryptocurrency as utility token, I really recommend you to learn more about Aion (AION), POA Network (POA), and HAT.Exchange (HAT). Aion (AION) and POA Network (POA) are making blockchains interoperable, faster, and lower cost. HAT.Exchange (HAT) is making the world’s first P2P Cryptocurrency-Fiat Exchange.

3. Cryptocurrency Fundamental Analysis: Cryptocurrency as Company’s Share. With this type of Cryptocurrency, you can receive dividend from the company’s profit. The number of Cryptocurrency of this type is pretty rare. A good example is Modum.io (MOD) and Kucoin Shares (KCS). It is literally providing services to companies and leverages blockchain for the services and to get capital. When you are investing in Cryptocoin as Company’s Share, these are some points that have to be considered when investing in Cryptocurrency of this type:

Customers and market size / growth. Do they already have customers? How big is the market? Is the market growing or shrinking? Would they be able to keep getting new customers and retain them? Investing in Cryptocurrency that can give you a growing dividend can give you multiple returns for the long run. You need to look for a market that is still growing rapidly.
Profit margin. How good is the profit margin? Can they maintain the profit margin for a long time?
Barrier to entry. How hard is it for new competitors to enter the market? Who are the existing competitors? How hard is it for competitors to take away the existing customers? Investing in Cryptocurrency with huge barrier to entry can be very powerful and defensive. Barriers to entry can be huge capital required, market share, network effect, or reputation.

For investing in Cryptocurrency as company’s share, I really recommend for you to check out Kucoin Shares (KCS), it is giving you daily return from the transaction fee of Kucoin Exchange. You can view the daily dividend given for holding KCS at Kucoinshares.com website.

If you find this useful and can help you in investing in Cryptocurrency, please give a “Clap” so that others can see it too!

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