Fundamental analysis is a method of evaluating a security in an attempt to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors.
Fundamental analysis is most commonly used in the stock market, but can also be applied to the cryptocurrency market. Some cryptocurrencies or tokens are based on an actual company that went through an ICO which is an Initial Coin Offering. These are easier to apply the Fundamental Analysis approach to. However, the other cryptocurrencies such as Bitcoin or Ethereum are not because they do not have any financial data or company operational data to analyze.
Let’s first look at companies that either use Smart Contract or Blockchain technology for their business. These are companies that did an ICO to raise money to start their business.
The things you can look for when deciding what their token is worth are things like:
– the general economy as a whole and how it could positively or negatively affect the asset
– the industry that they are in (how big is the market?)
– other similar tokens in the market that you can compare price to
– the people running the business (what are their qualifications, backgrounds, etc.)
– the company’s goals and projections
If you like what the company is doing and what they are offering, then that would suggest it could be a good investment for you.
For cryptocurrencies such as Bitcoin and Ethereum, the questions you need to ask in order to figure out if it is a good investment for you are the following:
- Why is this cryptocurrency good? Why is it better than another?
- Is this solving a problem?
- Is the technology good?
- Will this continue to be around in 3 years, 5 years, 10 years?
- Will it be replacing a security, commodity or currency? Or will it work along side it?
- What hurdles does it face as it grows?
Cryptocurrencies are usually not run as business with a CEO and Board of Directors, although there are exceptions. In some cases you can look to see who created the coin and who is deciding where it goes or how it works. For others, it is a bit more difficult because it is the community’s decision on how things progress and what changes should be made if any. The majority of the community will have to agree on changes to be made.
These are all things that a Fundamental Analysist would make when looking at a coin or token to invest in. We recommend also looking at our Technical Analysis article.