Crypto Trading 101: Fundamental Analysis 加密货币交易101：基本面分析
What is your crypto trading strategy? Technical or Fundamental? 您的加密货币交易策略是什么？技术还是基础？
Previously, we discussed technical analysis to trade cryptocurrencies and we mentioned fundamental analysis as well. So now that you gain a better understanding of technical analysis, let’s deep dive into trading using fundamental analysis.
Fundamental analysis is focused on assessing market fluctuations and trends. Through fundamental analysis, you could figure out which cryptocurrencies are worth your buck. It’s all about forming an educated opinion about the tokens that will probably give a lucrative return on investment in the future.
Regardless of experience level, it is wise to conduct fundamental analysis both as a starting point and as a recurring strategy.
If you can find that an asset has an intrinsic value that is out of proportion to its current market price, you can trade based on your analysis and probably make a profit. Fundamental analysis (FA) is a method used by investors and traders in most financial markets to assess the intrinsic value of an asset/company by examining qualitative and quantitative factors, such as company team management, experience, reputation, industry feasibility, market capitalization, and other economic factors. The goal of fundamental analysis is to determine whether or not the price of an asset is overvalued or undervalued.
Fundamental analysis works on the understanding that the future potential of an asset should be based on more than just prior performance. It takes into account both microeconomic and macroeconomic conditions that may have an effect on that particular market.
Therefore, we may consider that Fundamental Analysis seeks to determine how external factors can affect the performance of an asset. These considerations focus on less tangible and more qualitative aspects, such as a company’s leadership and how those leaders have performed in other business ventures prior to their current role.
Fundamental Analysis also seeks to better understand the industry-specific market and the future potential of the company in that market. Ultimately, their goal is to come up with a quantitative price that can be compared against the actual price of the respective asset. In other words, Fundamental Analysis is a method that may help to determine whether or not something is valued too high or too low.
Despite being traditionally used to value stocks and companies, fundamental analysis is applicable to nearly all kinds of assets including cryptocurrencies.
However, most cryptocurrency projects aren’t like traditional companies, lacking data such as revenue and statistics.
Since crypto is in its infancy, it is highly speculative.
There are several factors to look out for when analyzing an investment in cryptocurrency:
- Target Market
Every product has a target market and it is important to look into a company market size. Do remember that a larger market is not always better. If the market is large, it could already be over-saturated with solutions, decreasing the likelihood of adoption due to huge competition. Niche markets are small, but it could be highly receptive to a new solution to the problem.
- Demand, tokenomics and utility
Price and value in the open market are driven by supply and demand. Theoretically, the larger the demand, the higher the price.
Market demand is controlled by tokenomics and utility.
Research into the tokenomics of a company, which is essentially the economy based around the token. The token should be useful within the ecosystem to create sufficient demand.
Evaluate whether the utility is enough to drive future demand, and factor future plans for utility in trading/investing decisions.
Knowledge is power. In order to assess a coin, we have to first know where to get the key sources of information from. Cryptocurrency whitepapers outline the nitty gritty of a project. Technical documents are important as they detail everything about how it works, which can massively influence investment decisions. So don’t forget to read whitepapers before investing.
- Real-world use case
While a project may have great fundamentals, do remember that not all solutions will need blockchain and have its own cryptocurrency. If it doesn’t, that is something to think about before committing your money. It could sway long term value, one way or another.
- Price history and age
Some cryptocurrencies are temporary in the market. If a project has been established for a long time, and has consistently maintained value relative to other cryptos, perhaps it has longevity to strive in the future.
However, larger returns may be found from smaller, relatively unknown altcoins that breakout and become mainstream.
- Market cap
Consider the market cap to see the potential for growth of a blockchain project. Projects with larger market caps most likely have smaller growth potential relative to lower cap.
Fundamental analysis vs. Technical analysis
While fundamental analysis looks to a larger picture around the price of an asset — considering as many influencing factors as possible — Technical Analysis is strictly focused on historical market data and market charts. While Fundamental Analysis seeks to determine the real value of a trading asset, Technical Analysis is used as a tool to predict the price action based on trading volume and past trends. Most traders and investors probably agree that both Fundamental Analysis and Technical Analysis are valuable in their own way. So instead of relying on one or another, a contextualized and balanced use of the two analyses will be more reasonable.
***Disclaimer: This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to risk.
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