What is fundamental analysis? How to do fundamental analysis effectively in Crypto
What is fundamental analysis? How to learn fundamental analysis to evaluate Crypto projects? What are the advantages and disadvantages of fundamental analysis? Find out now!!!
When entering this market, you must have heard somewhere that there are two schools of analysis, that is Fundamental Analysis and Technical Analysis.
Technical analysis is the definition when talking about investors who spend most of their time drawing charts, using indicators. So what is Fundamental Analysis? How does fundamental analysis work? What are its advantages and disadvantages? This article will help you answer those questions!
What is fundamental analysis?
Fundamental analysis (FA) is the analysis of the basic elements of a project, from internal factors to external factors, to assess the impact of that factor on the value of the project. .
The ultimate goal of fundamental analysis is to determine whether current value is above or below what is currently being assessed by the market, thereby making more sound investment decisions.
Fundamental Analysis and Technical Analysis
When investing, we always have to learn to improve our winning probability, and learning in investing will be of two main types and their differences are:
- Learn Technical Analysis (TA): Learn to analyze the most important factors in investment, which is price analysis, how prices move in the market, the laws of price movement.
- Learn Fundamental Analysis (FA): Learn to analyze all the remaining factors (except price), such as technology, cash flow, team, community,… analyze those factors. How does it affect the price?
However, no analytical method is absolutely correct, each method has its own advantages and disadvantages, and you should choose the method that is suitable for your personality, goals, and investment strategy. .
You can refer to more articles on Technical Analysis to understand the concept, characteristics and how to analyze it, so that you can realize which school of analysis you are suitable for.
Who is fundamental analysis suitable for?
Fundamental analysis is suitable for those who like the elements of business, technology, the stories behind the project,… Investment is like choosing a lover, everyone will have their own criteria. your own, and fundamental analysis will help you find those criteria.
For example, I personally like projects with a strong community, and actively contribute to project construction. Therefore, I will often go to Discord rooms or forums to see how the community discusses and evaluates.
The Sushi Community is a very active community with a constant stream of recommendations
If you often choose a lover to be your wife for life, investing that uses fundamental analysis will also often apply to long-term strategies.
Because the core basic factors: people, technology, business model, … are factors that are very difficult to change and rarely change, looking at them you have to guess the future of 5 years. , 10 years later, so fundamental analysis is suitable for those who prefer long-term investing.
How to do fundamental analysis of a Crypto project
Fundamental analysis is like studying something, we can analyze:
- From top to bottom: Going from the general market ⇒ Industry ⇒ Project.
- Bottom up: Project analysis ⇒ Industry overview ⇒ Overall market assessment.
Each direction will have its own benefits, personally I will prefer to go from the top down, because that will grasp the general, make more comparisons and have more perspectives.
Top-down analysis will have 2 main steps:
- Identifying external factors, where is the project in the overall picture?
- In-depth analysis of the project.
Identify the project in the big picture
The goal is to answer 2 questions:
- Is the project a piece of the puzzle that the market needs?
- What is the growth potential of the project?
First, see if the project is the piece the market needs.
At this step, there are 2 main external factors you need to pay attention to:
- What industry is the project in?
- Which ecosystem is the project in?
You also know, currently the Crypto market is divided into many Blockchains with many ecosystems – more specifically, separate economies, each economy will have its own industry and competition.
Identifying the two factors above, you will know if the project is suitable for that picture:
- No matter how good a project is, but in an undeveloped ecosystem, it will be difficult for the project to go up.
- In contrast, a normal project, just a fork but in an evolving ecosystem, will receive a lot of expectations.
Is the project the missing piece in the big picture?
For example, ABC is the new AMM on Blockchain Near.
- Near is a stub Blockchain with a lot of growth potential.
- AMM on Near currently only has 1 Ref Finance, there are still many opportunities for other projects.
⇒ ABC is a remarkable project.
Second, determine the position of the project in the big picture, thereby helping us to know the growth potential (upside) of the project.
For example, I invest in Bitcoin (BTC), Bitcoin is in the overall picture along with trading tools and currencies on the market, on par with silver, gold, USD, EUR,…
So what is the potential for Bitcoin’s capitalization to grow? It can be the capitalization of gold, of the Dollar, of the EURO,… or of all the above markets combined. I don’t know where Bitcoin will really go, but I do know the “ceiling” of Bitcoin’s growth, where the price is acceptable, how much the price can rise.
In-depth analysis of the project
Just as defining a project’s position in the big picture helps us to know “how far the project can max out”, then in-depth analysis of the project tells us what the project is really about. How far can the project go”, be it 1/4, half, or maximum, .. There are 4 main factors when analyzing deeply into a project.
The first is Tokens.
Tokenomics is considered the backbone of a project when launching a token. To better understand the importance of Tokenomics as well as how to evaluate the token design of a project, please refer to the following article.
Functions of some tokens/coins in the market
The second is the current development status of the project.
In this step we will review the product and its development status.
- About the product: What is the product of the project? What problems are solved? Is this workaround new or not?
- About the development situation: On-chain data to evaluate, such as TVL, Volume, number of holders, number of partners, revenue generated,…
The third is the competitors in the same segment.
The comparison gives you a more objective view of the project’s products, is that good, can you beat the other party’s market share, the development of the project compared to the competition? how,…
Compare the revenue of Protocols. Source: Token Terminal
In addition, some other factors also need to be considered when doing fundamental analysis such as: Development team, Roadmap, Backer, Community, …
Combining all the above factors, analyzing and comparing, you will evaluate where the project really goes.
Advantages and disadvantages of Fundamental Analysis
Fundamental analysis helps you make judgments, evaluate the important factors of a project, and how those factors affect the Token value.
The analysis of fundamental factors helps you make better investment decisions in the long term. With knowledge, you will hold more tightly, unaffected by “FUDs” in the market, as well as know when to let go, not hold blindly.
Reference: What is FOMO & FUD?
Fundamental analysis requires you to handle a large amount of knowledge, in terms of technology, economics, and finance.
In the Crypto market there are many other investment opportunities that fundamental analysis cannot explain. For example, models of Ponzi, memecoin, … only in terms of investment, these projects bring high profits if they know how to play properly instead of doing fundamental analysis.
In the Crypto market, there will be many factors that can not be predicted, just one Tweet by Elonmusk will cause the market to crash showing how “fragile” this market is. Therefore, using fundamental analysis or any other method of analysis does not guarantee 100% effectiveness for investment strategies.
Therefore, besides analysis, you should also have an effective “risk management” plan.
Tools to support fundamental analysis
Idolmeta.net always tries to provide enough information and analysis so that you can learn fundamental analysis yourself, as well as support the investment process.
- To locate the project in the big picture: Idolmeta.net has articles assessing the project general manager, ecosystem overview, weekly ecosystem update analysis,…
- For in-depth project analysis: Idolmeta.net has Series to help you understand more deeply about projects, for example:
- DeFi Legos – Breaking down every key piece in DeFi.
- On-chain Microscope – Analyze on-chain data of projects.
- How It Works – Analyze the operating model of projects,…
Information channel of the project
The project itself always wants to attract the attention of investors, want them to invest in themselves, so the projects always provide enough information for investors to make decisions.
You can refer to: Project website, Medium, Lite paper, Discord, Telegram,…
Data aggregation channel
These channels will help you have specific data, serving the analysis to become more objective.
You can refer to some channels such as: DuneAnalytics, Token Terminal, Defillama, Glassnode, Coingecko, …
In-depth research and analysis channel
You can also refer to reviews from other parties. Here I suggest some youtube channels like Idolmeta, Finematics, Economics Design, The Daily Gwei,,….
Above are my sharing about Fundamental Analysis, hope to help you in the investment process. If you still have any difficulties with fundamental analysis, please leave a comment below so we can discuss and answer together.