Crypto 101: What is fundamental analysis? How to do fundamental analysis effectively in Crypto.

There are two ways of analysis in the market: Fundamental Analysis (FA) and Technical Analysis (TA). TA is a school of analysis that uses past price data to forecast future prices. 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 essential elements of a project, from internal factors to external factors, assessing the impact of that factor on the value of the project.

The ultimate goal of fundamental analysis is to determine whether the current value is above or below what is currently valued by the market, thereby making more sound investment decisions.

How to do a fundamental analysis of a Crypto project

There are two main types of analysis:

• From top to bottom: going from the market – Industry – Project
• From bottom to top: Going from project – industry – to market

Each direction will have its own benefits, but I usually go from the top down because that way, I will grasp the generality, make more comparisons, and have more perspectives.

The top-down analysis will have two main steps:

• Define the big picture
• Identify industry growth potential
• In-depth project analysis.

Define the big picture.

The goal is to answer the question: Is the project the piece the market needs?

At this step, there are two main external factors you need to pay attention to: What industry is the project in? and which ecosystem is the project in?

Currently, the Crypto market is divided into many Blockchains with many ecosystems, many different industries and with their own competition.

By determining the above two factors, you will know if the project is suitable for that picture:

No matter how good a project is, 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.

For example, Osmosis is the new AMM on Blockchain Cosmos. Cosmos is a very large Blockchain, but there are not many AMMs on it -> The industry has a low level of fast competition -> there is still a lot of growth potential.

Identify industry growth potential.

In this section, we will look at the industry’s growth potential.

In this step, we will find out: How big is the industry’s market size? Compare the project with projects in the same industry to get a better view of future growth.

This is a very important factor in knowing the future project’s growth potential.

If the project is developed in an industry with a tiny market, it is unlikely that the project will develop largely. In addition, if the project is priced too high compared to the top-tier projects in the same industry, the ability to continue to grow is also very difficult.

In-depth project analysis.

If determining the position of a project in the big picture helps us to know “how far the project can go”, then a deep analysis of the project tells us that the project tells us what “actually the project is”. how far can the project go”, it can be 1/4, half, or maximum. There are two main factors when it comes to deep analysis of a project.

The first is Tokenomics.

Tokenomics is considered the backbone of a project when launching a token. If the tokenomic is not good, the project may have a pump and dump situation. Making the project difficult in the early stages, as well as losing the trust of users when the token price dropped sharply.

The second is the project’s products, economy, and current development situation.

In this step we will review the product and its development status.

• the product: What is the product of the project? What problems are solved? Is this workaround new or not?
• the development situation: on-chain data to evaluate, such as TVL, volume, number of holders, number of partners, high revenue generated or not, and Develop strategies for the project…
• Economics: Where does the revenue come from? What does this revenue do? What benefits do project token holders benefit from the project’s products?

For example, when I learn about Pancakeswap, I will go to the website and read articles to learn about Pancake’s products. I know that Sushi is developing an ecosystem around its main product, AMM, to solve trading needs in the market. Then I will see the growth rate of basic indicators like TVL, Volume, Holder, and Staker; and then learn about the internal economic model of Pancakeswap. to make an assessment of the current development situation as well as the benefits of holding Pancakeswap’s tokens.

In addition, some other factors also need to be considered when doing fundamental analysis, such as Development team, Roadmap, Backer, and Community…

Combining all the above factors, analyzing and comparing, you will evaluate where the project really goes.

Advantages and disadvantages of Fundamental Analysis

Advantages of Fundamental Analysis

Fundamental analysis helps you understand the project more deeply, make judgments, and evaluate the important elements of a project more objectively.

The analysis of fundamental factors will help you make better investment decisions in the long run. With knowledge, you will hold tighter, unaffected by the “FUDs” in the market, as well as know when to let go, not blindly hold.

Disadvantages of Fundamental Analysis

Fundamental analysis requires you to handle a large amount of knowledge, in terms of technology, economics, and finance. Requires you to study hard and spend a lot of time.

In the Crypto market there are many other investment opportunities that cannot be explained by fundamental analysis. For example, Ponzi models, meme coins, market psychology, the influence of KOLs… in terms of investment alone, these projects bring high profits if they know how to play properly instead of dividing them. basic accumulation.

Therefore, the use of fundamental analysis or any other analysis method is not guaranteed to bring 100% effectiveness for investment strategies.

Therefore, besides analysis, you should also have an effective “risk management” plan.

Tools to support the TA process

There are many channels and tools to assist you in researching a project.

The first can be mentioned is the project whitepaper. The whitepaper is the project document that most fully presents the project they are developing. Whitepaper is something that you cannot help but read when you want to research about a project.

The second is the data aggregation channels as well as the project’s news channels. These are channels that make the analysis more objective. You can refer to social channels like Telegram, Medium,… and data channels like Defi Llama, Dune Analytics,… I have an article that summarizes useful websites for analysis. You can read it here.

Verdict

Above are my sharing about Fundamental Analysis, hope to help you in the investment process. If you have any questions, comments, suggestions, or ideas about the project, please email ventures@coincu.com.

DISCLAIMER: The Information on this website is provided as general market commentary, and does not constitute investment advice. We encourage you to do your own research before investing.

Ken. N

Coincu Ventures