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With traditional avenues of investment like stocks and bonds not doing so well, investors are now showing renewed interest in the crypto market. However, while crypto can be very rewarding, they are risky as nearly half of the cryptocurrencies listed in 2021 no longer exist. Investors need to be more careful, or they could lose all the money they have worked so hard to build. This is why research in projects is so critical. While the asset class might differ from legacy investment avenues like stocks and real estate, the techniques to evaluate them are still the same. In this post, we analyze one of the most popular methods people can use to analyze crypto projects, i.e. fundamental analysis.
What is fundamental analysis for crypto projects?
As there is no historical data like profit and loss and earnings reports, traders in the crypto space need to rely on research that includes learning about the network, the team behind the project, the execution timeline, use cases, and so on. This will help them discover an asset’s intrinsic value and the factors that could cause its price to move. It would also allow them to buy undervalued crypto assets and sell those overvalued before the market corrects itself.
Going through the white paper
A white paper holds much essential information that people can look at to decipher the project’s direction. Check to see if there is indeed a real problem they are trying to solve or do they invent one out of thin air to make a profit. Invest in projects with real applications and a technology roadmap that is realistic enough to achieve it.
It’s also critical that one needs to monitor the progress during different phases, including whether the tokens get distributed the way they were promised or if there are any red flags. This helps people decide if a coin is worth investing in the long term. Furthermore, it’s essential to look at competitors in the same space and see how the project fares against the market leader. People who don’t know how to read through a white paper can learn from resources like Ethereum Code.
Look at the team’s credentials
It shouldn’t be a surprise that people can lie to sell their crypto projects to unsophisticated investors. Millions of people can lose their hard-earned money in crypto pump-and-dump schemes that see the project owners inflate the prices artificially and sell it at the peak at the expense of those who trusted the false promises. One of the most prominent examples in this regard is the ThOneCoin Ponzi scheme. Its founder Ruja Ignatova convinced people that it was a real coin that would change the world. However, after raising billions of dollars, the former disappeared in 2017, leaving everyone shocked, confused and angry.
This is why investors must read up about each team member to see if they have a track record of executing successful projects in the last few years. Thought leaders in the blockchain ecosystem and crypto community value their reputation and only back projects whose vision aligns with their own. Check out the public GitHub and LinkedIn profiles of the founders.
Look at key performance indicators
Analyzing on-chain and financial metrics helps assess the ecosystem. Check out the market capitalization to get an insight into the network’s growth potential. Also, keep an eye out for monthly, daily, and weekly trading volumes to assess the interest in the coins. This helps them to determine the liquidity of the project. If you are looking to invest in the short run and want a return on your investment, invest in coins that offer liquidity and lower transaction costs.
One can easily download data from price-tracking websites for further analysis. More data that needs to be examined includes transaction count, transaction value, and how many blockchain active addresses are associated with the ecosystem. Staking is also a good indicator of the community’s interest in the coin. Check out learning resources from sites like Ethereum Code if numbers scare you.
Assess their community and marketing
With so many coins coming out daily, the marketing of the project needs to be on point to stand out from the crowd. Check out their presence on social media to see how they market themselves. Memecoins such as Dogecoin (DOGE) used social media effectively, and it paid dividends when it got Elon Musk’s attention and caused the price to jump significantly.
Also, check if there are developers in the community or not. This will help you assess if the ecosystem consists of newbies or people with experience in crypto investments as well. Moreover, check out how their marketing team is performing and whether they see an increase in market share.
Assess the Security of the platform
Consider investing in projects that prove the platform functions as intended in the whitepaper. Otherwise, they can become a victim of breaches which robs them of their hard earned money. Last year in 2022, Ronin New’s breach led to an astonishing $ 620 million being stolen. A test or prototype helps people to understand the Hash rate, which shows how secure the network is. This would help them to avoid this situation and keep their investment safe from cyber criminals.
Looking to learn crypto fundamental analysis?
Traders use a mixture of technical and fundamental analysis to decide whether to invest in an asset or not. Ethereum Code app, a leading institute, helps people from across the planet get started with the world of crypto trading. Those interested in learning more can visit their Ethereum Code Official Website today and check out their resources written by experts in the domain.
