Understanding Fundamental Analysis In Crypto


Investing in crypto has taken over the financial markets today. From large corporations to individuals, everyone wants a piece of the profits. However, it can be hard to understand how to analyse crypto, especially for newcomers. One of the most popular methods investors use to evaluate crypto projects is fundamental analysis. But what is it and how can you apply it in your investments?


Definition of Fundamental Analysis in crypto

Fundamental analysis is the process of finding the value of an asset by examining its key characteristics, such as financial and economic data, industry trends, and management expertise. In the context of crypto, fundamental analysis involves evaluating the underlying technology, supply and demand factors, the community and its capability to innovate.

Importance of Fundamental Analysis in crypto Investments

The crypto market is volatile because the asset class in new and also because the number of participants are less. This makes it hard to rely solely on technical analysis or market sentiment. By examining the factors that drive an asset’s value, investors can understand its prospects and potential for growth. Additionally, fundamental analysis can help identify overvalued or undervalued tokens. It also helps investors avoid potential scams or fraudulent projects.

What is Fundamental Analysis?

Understanding the Concept of Fundamental Analysis in crypto

Analysing crypto prices may give you an idea of where the token will go in the short run, but this falls apart for long-term investing. Fundamental analysis instead studies what gives a project value. It answers questions like- Why are investors interested in a token? When you want to put your money and support behind a project for several months or years, looking at its price charts is not very effective. 

Key Factors to Consider in Fundamental Analysis

As mentioned above, the growth of a crypto token, in the long run, is dependent on several factors. Some general factors include the technological innovation of the project, the developer’s capability and tokenomics. But keep in mind that the most important characteristic depends on the type of project you wish to invest in.

Read more: Crypto Investing vs Crypto Trading 

How to Do Fundamental Analysis in crypto?

Steps to Follow when Conducting Fundamental Analysis in crypto

Steps to Follow when Conducting Fundamental Analysis

When conducting fundamental analysis for a crypto token, here are some general steps to consider:

  • Research the project: Start by researching the crypto or blockchain project you are interested in. Look at the website, read the whitepaper, and analyse the project’s roadmap and goals. Determine whether the project has a clear use case and if it solves a real-world problem.
  • Assess the team: Evaluate the experience and track record of the project’s founders, developers, and advisors. Look for individuals with a history of success in the relevant field, and assess their ability to execute the project’s goals.
  • Analyse the market and competition: Assess the market size and competition in the relevant industry, and determine whether the project has a competitive advantage over other crypto assets or blockchain projects. Consider factors such as market share, user adoption, and brand recognition.
  • Evaluate the technology: Assess the technology behind the project and determine whether it has any unique features or advantages over other crypto assets or blockchain projects. Look for evidence of real-world adoption and use cases.
  • Monitor news and developments: Stay up-to-date on the latest news and developments related to the project and the broader market. Look for signs of regulatory changes, partnerships, or major events that could impact the project’s value.

Tools and Resources Needed for Effective Fundamental Analysis

The main resources you will require include market tracking websites, social media and the project’s own webpage. Market tracking will allow you to get a sense of the price history of the token, while social media helps you assess how the project’s user base feels about its future. 

Analysing Crypto Fundamentals

Key Metrics to Consider When Analysing crypto Fundamentals

  • Maximum and Circulating Supply: Maximum supply is the total number of tokens that the project can create in its lifetime. Some projects may have low limits, while others may have no cap on the total. Circulating supply, on the other hand, is the number of tokens being traded in the market currently. 
  • Past Milestones and Roadmap: A roadmap tells you two things – what to expect in the project’s future, and when to expect it. To understand if the team can deliver on their promises on time, look at their past milestones and whether they were achieved on schedule. 
  • Social Media Engagement: Analyse whether the project’s community is genuine. If a project has tens of thousands of followers but only a few dozen likes, that can be a red flag in terms of engagement. 
  • Decentralisation: Observe whether the tokens are distributed fairly and transparently. Additionally, check whether block validation is conducted by many independent nodes. Decentralisation is key to the success of most blockchain projects. 

Read more: Common Crypto Mistakes To Avoid For Traders & Investors

Examples of Crypto Assets With Strong Fundamentals

Bitcoin, Ethereum, and Cardano are a few cryptos with strong fundamentals. There are several hundreds of crypto tokens which can be added to this list. Bitcoin, as the first and most well-known crypto, has a large and growing user base, which supports its value and adoption. Its decentralised and secure network, based on blockchain technology, has proven to be reliable over time. 

Ethereum, on the other hand, is known for its smart contract functionality and the ability to build decentralised applications (dApps) on top of its blockchain. This has led to a large developer community and significant usage of the Ethereum network. 

Cardano, a newer entrant to the market, is focused on providing a secure and sustainable platform for decentralized applications. Its transparent and scientific approach to development has gained significant attention and support from both the crypto community and academia. 

How Does Fundamental Analysis Work?

Overview of the Process and Methodology of Fundamental Analysis

  • Research: The first step is to gather relevant data about the asset being analysed. This may include financial statements, industry reports, news articles, and other sources of information.
  • Industry analysis: Next, the analyst will evaluate the broader economic and industry trends that may impact the asset being analysed. This involves macroeconomic indicators, along with industry-specific factors like supply and demand.
  • Company or project analysis: Next, evaluate the specific company or project, looking at factors such as revenue growth, profitability and market share. For blockchain projects, this may also involve evaluating the underlying technology and adoption rates.
  • Valuation and comparison: Based on the analysis conducted, determine the intrinsic value of the asset being analysed and compare it to its current market price. 
  • Investment decision: Finally, use the results of the analysis to make an informed investment decision, either buying, selling, or holding the asset being analysed.

Benefits and Limitations of Using Fundamental Analysis in Crypto Investments

  • Long-term value: Fundamental analysis focuses on the intrinsic value of an asset, rather than its short-term price movements. This can help investors identify assets with strong long-term potential.
  • Comprehensive analysis: Fundamental analysis involves a comprehensive analysis of various factors that can impact the value of an asset. This can provide a more thorough understanding of the asset and potential risks and opportunities.
  • Research and expertise: Fundamental analysis requires a significant amount of research and expertise. This can be time-consuming and may require specialised knowledge and skills.
  • May not account for market sentiment: This method does not account for market sentiment or other factors that can impact short-term price movements. As a result, it may not always provide an accurate picture of the asset’s value in the short term.


Recap of the Importance of Fundamental Analysis in crypto Investments

In conclusion, fundamental analysis is an essential tool for investors to evaluate crypto projects. It involves evaluating key characteristics such as the underlying technology, supply and demand factors, the project’s community and its capability to innovate. It can also help identify overvalued or undervalued tokens and avoid potential scams. 

Key Takeaways and Steps for Conducting Effective Fundamental Analysis in crypto

To conduct a fundamental analysis of a crypto, investors should research the project, assess the team, analyse the market and competition, evaluate the technology, and monitor news and developments. To get started, simply find a project that interests you. Using the steps provided above, you can decide whether it is worth investing your hard-earned money in. 

You can learn more about crypto on ZebPay blogs. Trade confidently using ZebPay India. 

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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