Back to Fundamentals — Bear Markets Mean Prime Opportunity | gTrade
The collapse of Terra Luna shocked the blockchain industry. This was a $40B+ project that crashed to zero, almost literally. Too big to fail does not exist in crypto. In hindsight, it is easy to see the fatal design flaw in the Terra ecosystem. But will investors learn? Market sentiment became noticeably risk averse after the crash of UST and LUNA. So what does this mean for the blockchain industry moving ahead? We believe this means a re-evaluation of fundamentals and core principles within blockchain projects.
What do you look for in projects that you invest in?
Investors are in an introspective phase right now — questioning the viability of their portfolios. The main thing great investors are looking for now is real value. This means projects with positive net profit, strong design fundamentals, great product-market fit, consistently growing number of users and a strong, adaptable team.
Fundamental Analysis
Fundamental analysis is the antidote to bear market blues. In fact, fundamental analysis during bull markets is also formidable. If you are investing in solid fundamentals, then your positions are much more robust, no matter the market conditions.
The projects which give the most value back to the world are the ones which will survive. Investors need to find conviction in their investment picks and potentially re-assess their analysis criteria during market downturns to weather the waters. Ultimately, the goal here is to decide whether an asset is undervalued or overvalued.
Evaluation Criteria
Docs:
The Gitbook of a DeFi project is the first place you should look for information on the product or service. This is where the reason for the project’s existence, value proposition and mechanics will be explained. Pay attention to how well the product or service is explained here and how concretely the vision is communicated.
Team:
You should aim to find information about the team working on the project. Join the project’s socials and ask questions. Look at the developers’ Github if available and scan through the website for any information that indicates the quality of the team. The quality of the product is also a reflection of the team.
Target Market:
Ask yourself who the project is targeting and whether this market is prime for disruption. Determine the potential size of the target market and what pain points the product or service is solving. Is it a problem you’ve had yourself or is the problem being solved frivolous? Is the project trying to replace legacy infrastructure and innovate?
Community Sentiment:
Join the social channels of the project you’re analyzing to get a sense of the community. Are people there passionate about the project? Is there excitement? How well does the team communicate to the members and are their concerns heard?
Tokenomics:
Thoroughly understanding the tokenomics of cryptos, and the common types of tokens, can give a healthy edge over other investors who did not do their due diligence. Tokenomic archetypes will give you a sense of the development path a token could head towards. This information can help you understand whether an asset is currently overvalued or undervalued and where the trend will head.
Be careful of metrics like FDMC (Fully Diluted Market Cap) or FDV (Fully Diluted Value) which can create a false sense of real value. This metric measures the market cap of a token (or asset) if all of its total supply were issued. It’s possible that a majority of a project’s tokens are vested which are waiting to be unlocked and, therefore, sold on the market.
Conclusion
Having consistent and holistic evaluation criteria is imperative to fundamental analysis. Bear markets and fearful sentiment make prime times for investment re-evaluations. Value investors shine during these times as money flows into projects perceived as having the best vision with tangible value already present. Speculative projects which have yet to deliver any product usually sit on the back-burner when fear permeates markets.
In essence, fundamental analysis can help increase the comfort investors feel with their portfolio while the rest of the market corrects and deleverages risky plays. Fundamentals are what investors default to no matter the market conditions — especially during accumulation and mark-down phases. By using the principles of fundamental analysis, investors can help protect themselves from the worst case scenarios.
Note*: Nothing said here is meant to be investment advice. This is an evaluation of the ideology behind fundamental analysis and how it can be applied to cryptos.
