Fundamental analysis is, in my opinion, the most important skill to learn if you want to be a cryptocurrency investor. So we’re going to run through exactly what fundamental analysis is and how you can use it to your advantage.
What is fundamental analysis?
It’s the process of diving behind the scenes and researching a potential investment, where you thoroughly study the ‘fundamentals’ of an asset. In other words, fundamental analysis is when you assess a cryptocurrency to figure out whether it could be a worthwhile investment.
Why does it matter?
For investors, understanding what you are going to be buying and holding is key. The less sure you are about what you’re buying, the more risk you’re putting yourself in.
If you want to buy something new, whether it’s something small like a new keyboard, slightly bigger like a new phone, or even a huge purchase like a car or a house, you’re going to do substantial research before you buy.
Why? Because you want to know that you’re buying something that is going to be worth your money. Investing is the same.
Investing isn’t about following the crowd or listening to influencers. That’s not going to get you anywhere. Investing is about getting stuck in and discovering investments that other people haven’t been able to find. You can do this with fundamental analysis.
Of course, it’s not all about uncovering undiscovered gems. There is money to be made investing in assets that are well known too. The point is, you can’t just blindly invest. There is a huge range of cryptocurrencies to choose from – so you better know what you’re buying. This way you could massively increase your chances of success.
How to do fundamental analysis
When you are assessing a cryptocurrency, you’re looking at any aspect of the project that contributes to its overall success and therefore value. There are loads. Here are some of our favourite aspects of a project to look at:
- The product
- Target market
- User base
- Market cap
- Past success
If you want to be a winning investor, you’re going to have to dive deep. You need to look at things that other people haven’t. Not everyone can win, so to get ahead you’ve got to put in the work.
Doing fundamental analysis is straightforward, but the overall process can be exhausting to carry out on every single cryptocurrency out there. To start with you need to understand what you are looking for. Know what makes a good cryptocurrency investment. When you know that, you are able to get faster and better at fundamental analysis.
Good analysts will spot red flags almost immediately. There are thousands of cryptocurrencies, you don’t have time to assess every single one of them. But now that you know what you’re looking for, one quick glance will tell you to discard it and move on.
Maybe the product sucks, the team is anonymous or they haven’t made any progress in two years. Whatever it is, you’ll start spotting the red flags quickly. From there, fundamental analysis will allow you to dive deeper into the promising products to make your final decision.