Fundamental Analysis for Profitable Crypto Trading

Published in

Coinmonks

6 min readMar 24, 2022

Investing in cryptocurrency markets can be quite tricky and somewhat risky without proper research as the market is very volatile and prices swing up or down uncontrollably. This volatility in the crypto markets makes it somewhat difficult for inexperienced traders to make a profit as they do are not aware of the tools used to predict the markets.

Investing in cryptocurrency requires careful research and evaluation of all available metrics, all these which can be gotten through proper fundamental analysis. Although, it is believed that fundamental analysis can only be used for the stock markets and not the crypto markets as the market is relatively young, unregulated, and very volatile.

However, fundamental analysis in the cryptocurrency market is very essential as it helps determine the strength of a coin whether it is worth buying or selling.

Fundamental analysis is a market strategy used by investors to determine the intrinsic value of a cryptocurrency

The main goal of fundamental analysis is to determine whether a coin is undervalued or overvalued, leveraging on that information to make entry or exit positions.

Most projects provide information about the purpose of the coin, tokenomics, the team behind the currency, its development to date, etc. Using this information, with a combination of quantitative and qualitative factors, you can derive a view on crypto using fundamental analysis.

Side note: When making research I usually use tools on Newscrypto.io which helps me conduct my analysis more seamlessly. Newscrypto.io is a great platform to use for fundamental analysis to analyze required metrics before buying or selling any cryptocurrency.

Factors to look out for when conducting crypto fundamental analysis

Investors need to look out for a number of factors when conducting fundamental research on a cryptocurrency before investing to ensure profit. The factors to look out for during fundamental analysis are grouped into 3 major categories:

1. On-Chain metrics

Onchain metrics can be gotten by looking through the blockchain data, this can be done by running a node. However, this would be expensive and time-consuming especially if you’re only looking to invest. Fortunately, a range of application programming interfaces (APIs) provide tools to empower investment decisions.

For example, Newscrypto.io is an informational and trading platform that is said to be the best platform in providing information, news, analytics, and trading within the cryptocurrency and blockchain setup.

Some Key Onchain metrics to look out for include

Hash rate — This is often used as a measure of health in proof of work cryptocurrencies. The hash rate is the combined computational power used in mining to perform calculations on a PoW blockchain.

The higher the hash rate, the more miners are incentivized to mine for profits, and the more secure the network.

Transaction fees and value — A consistently high transaction value shows a currency in steady circulation, while comparisons reveal data concerning potential future market movements.

Compared to technical analysis, when running fundamental analysis, analysts also prioritize the assessment of transaction values.

Fees reflect the demand on the blockchain, or how many transactions are paying to be added to blockchains as quickly as possible. Assessing fees paid over various periods gives investors an idea of how secure the cryptocurrency in question is.

Active addresses — Active addresses measure the number of active blockchain addresses over a period of time. One of the simplest approaches is to total the number of sending and receiving addresses over various periods.

Tally the active addresses over a period of days, weeks, or months and compare the growth or decline to gauge activity and interest in the coin or token.

2. Project metrics

Unlike on-chain metrics, project metrics take a qualitative approach looking at factors such as the purpose of the cryptocurrency, the road map, the team performance (if any), the whitepaper, how the project operates, etc.

The Team

Behind every successful project is a great team behind it. To know if a project is good enough to invest in you can check the team activity. If there’s a specific team behind the project, its members’ track records can reveal whether the team has the required skills to bring the project to fruition.

If there’s no specific team, you can check the developers’ history, if the project has a public Github and the level of activity of the developers. A coin with constant development may be more appealing than one whose repository hasn’t been updated in two years.

Tokenomics and distribution

Tokenomics is essentially the economics based around a token. It is essential to determine whether the token has real utility or not.

Prices and value are driven by demand and supply which means the higher the demand the higher the price, meanwhile demand is controlled by tokenomics and utility.

It is also important to consider how the funds were initially distributed, through ICO, IEO, or mining, how much is kept for founders and team, and how much will be available to investors.

Whitepaper

The whitepaper is a technical document that outlines everything about the project. It explains the nitty-gritty of the project including useful information such as the use case of the project, tokenomics, and utility, team information, planned upgrades and developments, sales information, etc

Proper assessment of the whitepaper can greatly influence investment decisions.

Road map

Most crypto projects have roadmaps that show upcoming plans for the project, a timeline for test nets, releases, and future developments. The roadmap shows the achievements of project milestones.

Competitors

In any industry, competition is very important. It is important to identify similar projects competing. An asset may look appealing by itself, but the same indicators applied to similar crypto assets could reveal ours to be weaker than the others.

3. Financial metrics

Assessing crypto financially involves understanding the trading conditions of assets including their liquidity, surrounding factors, and market response.

Liquidity and trading volume

Liquidity is a measure of how easy it is to buy and sell a cryptocurrency or token. Liquidity is said to be strong when a cryptocurrency can be bought or sold easily without drastically altering the market value.

Trading volume is an indicator to measure liquidity. The trading volume serves to show how much value has been traded within a given period of time.

Strong liquidity helps influence investment decisions as it shows the market’s interest in a prospective investment.

Market capitalization

This is popularly called the market cap. Marketcap is calculated by multiplying the current price of the token by the number of tokens in circulation. The market capitalization value is the representation of a network’s value.

However, the market cap can be an often misleading indicator. For instance, it would be easy to issue a useless token with a supply of ten million units. If just one of those tokens was traded for $1, then the market cap would be $10 million. This information is obviously misleading.

Circulating Supply

The circulating supply refers to the number of tokens actively in circulation. Circulating supply should not be mistaken for maximum or total supply as the circulating supply is not static. The circulating supply measures the number of tokens available to the public.

It is subject to change over time depending on the number of tokens minted or added to the supply or the number burned to reduce the circulating supply.

Before investing in any cryptocurrency project it is essential to keep all these metrics in mind as they will guide investment decisions. This list however is not an exhaustive list as there can be other metrics to keep in mind while conducting deep crypto fundamental analysis but it's a great way to start to become a better crypto trader.

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Fundamental Analysis for Profitable Crypto Trading

Factors to look out for when conducting crypto fundamental analysis

1. On-Chain metrics

2. Project metrics

3. Financial metrics

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Written by Bio Francis