Understanding Fundamental Analysis in Crypto (Defi Analysis)
?I will go through seven things you might want to research when doing a basic fundamental analysis of cryptos.
What is Fundamental analysis?
fundamental analysis is using some objective method of calculation to find the intrinsic value of an asset or the true worth of an asset.
7 Basics of Fundamental Analysis
For a beginner, just building your general knowledge of cryptocurrencies and the blockchain world would definitely help you. When you are reading about cryptocurrency, there are different terms you need to understand to know actually what is being said. I would recommend you start to learn the key basic concepts in blockchain technology like:
what is a blockchain?
How does blockchain technology do?
Difference between proof of work and proof of stake?
Understanding smart contracts?
what is the scalability & its issue?
what is transaction speed?
A really good place to start a good search for your resource is the coinmarketcap glossary.
The coinmarketcap glossary has a load of different terms and links to those terms which explain the term itself which is really useful. If you are going to invest some money into this space you probably want to learn what the term means.
When you start researching particular crypto is to read the whitepaper. The whitepaper of crypto can be found on the crypto’s website.
What is a Whitepaper?
This is a report or documentation created by the creators of the blockchain or crypto.
This report describes the problem of what:
- They’re solving with their crypto?
- What sort of technology they’re using?
- what sort of speed & scalability it’s capable of?
- what sort of token distribution the project has?
The whitepaper is meant to help you understand what the project is and what the product is trying to do.
Here are some key Mindset things that you want to find out when reading the whitepaper:
- What problem are they trying to solve?
- How big do you think the problem is?
- What is the total addressable market?
- Is it a problem that really needs to be solved?
- Does the problem really need blockchain (why don’t you just use existing technology to solve it)?
- How heavily regulated is the market?
Once you’ve got a general understanding of the problem and the technology of the crypto in your own opinion and general knowledge, you might not be an expert in the space but from your experience of general life and you know the things going on around, you would have a pretty decent opinion about whether the project would succeed or not.
If you don’t have much of an opinion but you still really want to invest in the project maybe you should ask someone who has a bit more knowledge of that market.
Tokenomics (Supply & Demand of The Token)
While reading a whitepaper you also want to check out the tokenomics so you know what is the token actually used for (Demand) Vs if there is any utility for the token for/ how is the token supplied to fulfill that use (Supply). For example:
Binance token (BNB) is used for reducing fees on the Binance exchange.
looking through the whitepaper, you know:
- How is the token supply generated?
- Circulating Supply?
- Total supply?
- Fixed supply?
- The inflation rate of coin supply?
- How scalable is it to meet the demands?
Scalability in crypto is a very popular subject because we want blockchains to scale to a global sort of market and
Presently, scalability is hard to come by in most blockchains so you want to find out how many transactions per second the blockchain is capable of. If a token doesn’t have any real utility then people won’t seek out the token to buy and use, therefore if no one is buying and using the token then the token value would drop.
Before you’re investing, you need to be happy with the tokenomics before anything.
Who is on the Team?
A bit of detective work is involved here like
when you want to find out more about your girlfriend or boyfriend’s bestie who is the opposite sex.
Finding out more about the team of a Cryptocurrency is important. The actual team that’s building the crypto project can usually be found on the website or Go to LinkedIn, type in the project’s name and try to find the team members.
the purpose of this step is to know if someone on your team is hungry or has really relevant experience who you think would probably get the job done, who can execute, and who has good connections within the industry before you put money into it.
You’ll want to look at all the leadership in the team and if you have time I would also advise looking at the entire team and what you want to look for:
- Are they experienced?
- What sort of experience they’ve got?
- Do they have possibly really good connections to the industry?
- How trustworthy do you think this person is?
How Active is their community?
More detective work is needed here, you will be looking at the community involved with the project, and what you want to be looking for is are any people building on the project currently like:
- How many developers there are?
- How active they are?
if the developers are not very active and there are not very many projects built with blockchain technology then you could probably make the assumption that the rate of adoption would be slower with this particular project and things like this could occur due to several different reasons but some reasons are that maybe the team doesn’t have a very good marketing department or not enough developers are aware of the projector or the project or technology is just not as interesting enough for the developers to use.
Looking at the partnerships a project may have is a major part of fundamental analysis. This is a really important particular step because its shows early signs of adoption and will let you know if larger companies have a strategic interest in the blockchain and are exploring use cases with it.
Example: Tesla’s investment in Dogecoin, bitcoin, etc.
Generally, you want to put your pennies next to these companies’ dollars and you know. if a big company like Google is partnered with a particular blockchain then you could probably say that Google is invested in the success and want to see the success of that project a big company like that is probably smarter than you & I and it’s an easy way to kind of filter out the projects.
Who are their partners?
How big are their partners?
What are they partnered for?
What is the nature of their relationship will this bring about adoption?
You want to look out for these things.
Who is their competition?
You’ll be finding out if another project is already doing a similar sort of thing to the crypto project, you’re interested in. It’s probably best to check if someone is already doing the same thing and if they could be doing it better.
Things to ask yourself are:
- Why would you invest in this coin over the competitor?
- What are the chances that your particular coin or crypto will come out as the winner in the end?
- How big is the market your crypto is in?
- is there space for competitors?
- are you happy with investing in a highly competitive space?
The best way to find your competitors is just to google search it,
Type the name of your crypto space competitors into the Google search bar and literally search for it on Google. most likely you’ll find that people have already done a similar search to you and you will find there’s already a bit of content out there with this sort of information and if there isn’t then you’ll have to do it the hard way and go through each of the coins on coin market cap and just research what each of the coins is doing and see if that is actually a competitor to the particular crypto you’re looking at.