Why Cyber Capital applies fundamental analysis
Fundamental analysis originates from the book of Benjamin Graham, Security Analysis (1934). Many metrics, such as earnings per share, proposed by Graham, are still used in fundamental analysis today. In the case of publicly traded companies, they have to report all of their financials via set standards, allowing anyone to analyze the numbers and create their own assessments. Warren Buffet, worth more than 100 Billion dollars and arguably the best investor in the world, is famous for consistently beating the stock market using fundamental analysis.
Although the principles of fundamental analysis can be transposed to cryptocurrencies, they are different. For starters, they are frequently decentralized networks rather than traded companies. The larger cryptocurrencies are often led by a more centralized group, such as a foundation or a team of developers. Although many cryptocurrency projects are not obliged to publish financial information to the public, the transparent nature of the blockchain still provides critical insights into token creation, movements, and burning.
Legitimate crypto teams publish a transparent roadmap of their project and keep the community informed of any changes.
While cryptocurrencies are traded on the market in the same way that stocks and securities are, they have a different DNA. Nonetheless, there are common fundamental analysis metrics as a starting point.
How does it work?
Fundamental analysis of cryptocurrencies is also commonly known as “do your own research” in the crypto world. So if one wants to do their own research, what are things that one should look at?
Now, this is where things get interesting as cryptocurrencies are still very new, and there are several ways of evaluating cryptocurrencies. A number of factors can be looked at, such as Network Value to Transaction (NVT) Ratio, Cost of Mining, active addresses, Market Value to Realized Value Ratio (MVRV), circulation supply, use case, underlying technology, project roadmap, and token economics.
On the basis of such factors, one must then define for themselves what can be seen as important for an investment recommendation. Just like with regular stocks, you want to create an investment thesis for a portfolio.
For Cyber Capital, four key factors shape our investment thesis:
- The underlying technology
- The use case
- Team and governance
- The token economics or value accrual mechanism
Why does Cyber Capital use fundamental analysis, and why do we believe it is best in the long term?
Cyber Capital was founded on the idea of giving people exposure to the best possible cryptocurrencies. The investment strategy of the fund is to ensure a careful selection of blockchain projects that have an investable cryptocurrency that will be more valuable in the future over the long term. Our multidisciplinary team, which covers philosophy, computer science, finance, and education, gives Cyber Capital an edge in assessing great cryptocurrency projects among tens of thousands.
Cyber Capital’s active investment strategy that employs fundamental analysis has shown to generate superior risk-adjusted returns. Our core principles remain throughout the fund life, with minor tweaks to strategy as this nascent market evolves.
About the Author
Stephan Brouwer is client relationship manager at Cyber Capital. With his entrepreneurial background he is responsible for maintaining and building relationships with both existing and new clients.
About Cyber Capital
Cyber Capital, Europe’s oldest cryptocurrency investment fund, is a fund manager that specialized in providing exposure to the crypto-asset markets as an alternative asset class. Cyber Capital is fully registered by the Dutch Authority for the Financial Markets under the AIFMD-light regime and the Dutch Central Bank.
