There are always going to be differences between the cryptocurrency world and traditional finance. For starters, obviously both spaces are trying to achieve different things. However, despite the differences, there are numerous parallels between the two spaces.
For instance, fundamentals play a big part in investment analysis. It’s a key skill, regardless of what you’re investing in. People look closely at fundamentals to try and discover an investment opportunity that they believe is undervalued. This allows them to buy, and then lie in wait as they hope the market will catch on and increase the price to true value – netting the investor a profit.
However, despite this overall technique being used in every investment space in all markets, the way that fundamental analysis is carried out varies significantly between markets. Stock investors would have no idea how to properly evaluate cryptocurrency projects. The process is so different, it would seem completely foreign to investors that aren’t from the crypto realm.
What are crypto fundamentals?
But, these differences also exemplify the problems with cryptocurrency and valuations too. Outside of crypto, a key part of fundamental analysis is to look at the financials of a business, especially their profit, margin and cashflow figures (coming from operational revenue and costs). In cryptocurrency, this is an alien concept. Should it be, though?
By and large, how crypto works now is that a team spins up an idea and raises millions of dollars in funding from token sale investments. They then have a huge pile of money to burn through, allowing them to focus on building a product rather than aiming for positive cash flow as quickly as possible. However, this also sets a dangerous precedent, because most crypto start ups fail without actually generating any real revenue, profits and cashflow. The money dries up quicker than they thought.
So here we are. A strange world where cryptocurrency fundamental analysis is massively different to traditional finance, yet most investors would like to see a change. Is it too much to ask for cryptocurrency projects to build a real product that people want to use, thus being able to generate profits?
Although there are many projects keeping their financial records strictly hidden, there are a few good eggs that are pushing to bring more transparency, accountability and professionalism to the space. Let’s take a moment to appreciate some of the crypto projects doing things right.
Tixl
One such example is Tixl, a german cryptocurrency project that has successfully started earning revenue.
Recently Tixl released a blog post stating that they had started earning their first revenue from a side project, which is now being used to contribute to the larger development goals of their platform.
Tixl realized that there wasn’t a good software solution for rewarding activities on Twitter, so they built their own – without spending core developer time, as this was just a “side project”. It’s now called the ‘Tixl Astronauts Club’. It’s become a big hit in the Tixl ecosystem.
Then, out of nowhere, a project called Rebased approached the Tixl team about their social reward program. They realized that they could whitelabel it and start earning revenue, so in another side project they did. Tixl is also in the final negotiation phase with another crypto project and they are discussing with a third project too.
Earning real revenue so early in the life cycle of our project means we have more funds for the development, marketing and/or Token Burn of Tixl, respectively. This is great news for the project.
Tixl Team
We continue to remain fully focused on the development of the Autobahn Network. Autobahn Network Developers were not involved in the development or launch of this product. It was an additional project developed by the “Marketing Team”, with the adjustments for a basic Whitelabel solution able to be completed over one weekend.
Kleros
Kleros is a decentralized arbitration platform that we’ve covered fairly comprehensively in the past. They have a history of being properly transparent with their financials, which in cryptocurrency is great to see.
It’s not often you are able to study the financials of a crypto company, but Kleros makes it possible with their annual report. It contains a comprehensive overview of the company’s financials from the past year. By doing this, Kleros is showing their supporters and investors that they are using their funds properly and operating like a business should. Without this transparency, it’s hard to know what’s actually going on behind the scenes.
Celsius Network
Cryptocurrency lending platform Celsius Network put out a press release back in March 2020 to declare profitability since the beginning of 2020.
By March the company had already exceeded $1.5 million in monthly revenues, and the company was expecting a record revenue figure for the first quarter of 2020.
How important are revenue, profit and financial transparency?
Even without the transparent detail, it’s reassuring to see that the project you’re investing in is providing real value, rather than just generating hype on social media.
At the end of the day, solid financials mean that the project has a longer runway and a great chance at success. If they are already bringing in revenues, profits or cashflow respectively, that means they have more funds available for business growth, marketing, developers, token burning and so much more.
Financial figures,revenue, profit and cashflow statistics aren’t really on a fundamental analysts radar in cryptocurrency – but maybe they should be.
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