In today’s article, we will look at the process of observing the crypto market from the perspective of fundamental analysis. Technical analysis will be divided into other articles, where we take a deeper look at individual indicators so you can understand them in detail (take a look at the text on market cap). Let’s talk about something for those today who, while watching the chart, also want to know the events related to the project they want to invest in.
What is the fundamental analysis?
It is, next to technical analysis, the primary form of checking whether an investment in an asset might be attractive for you. To conduct it accurately, you should perform the so-called DYOR (Do Your Own Research). We recommend including the following:
– checking market trends,
– getting up-to-date with the latest news on a given crypto project,
– detailed whitepaper analysis.
How to perform DYOR correctly?
Let’s start with the basics.
First, ask yourself what you expect from a given investment. The answer is more complex than you might think. If you are looking for a means of storing value, look toward non-algorithmic stablecoins. In their case, you should analyze what they are secured with. Every stablecoin has a peg – an asset intended to protect the coin from fluctuations in value. You certainly would want to avoid repeating the case of people who invested hundreds of thousands of dollars in LUNA.
If you want a lower-risk asset, look at cryptocurrencies that have been on the market for a long time. Projects with very high capitalization are less exposed to price fluctuations in both directions. The fact that some big player throws a so-called “bag” of coins into the field at a low price won’t significantly affect the value of an asset. That allows you to feel safer with your investment. It is still high risk, but as in the classic market, someone prefers bonds and the other futures – your risk aversion should determine your choices. Remember that the price will fluctuate over time. If you are not mentally ready to lose the capital you put in for higher-risk assets, you may be tempted to panic sell when crypto winter cools the euphoric climate.
The third group is emerging projects. This particular type of investment gives the market the stereotype of a space where you can make a fortune or lose it all in a short time. Nowadays, someone with an idea for a product or service doesn’t have to look for venture capitalists. Nowadays, they can launch the token on the market, and then the interested community will invest in its future value. Here we move on to the true essence of DYOR, which is whitepaper analysis.
What is the whitepaper, and how to read it?
It can be otherwise called the technical documentation of the project. It is a collection of information that can be written in a more or less formal or technical way, but the most important thing is the quality of the information it contains, regardless of the form. Go through its reading to answer the following questions:
- What is the purpose of the project? Looking forward, what added value will the solution, product or service bring? Will there be a demand for it?
- What does tokenomics look like? Find out exactly how the authors divided the supply of tokens between specific areas of the project’s development. Will some of them be burned? Is there an option to allocate funds for staking or farming? With what APY?
- Who stays behind the project? The team should consist of specific people with a photo and personal information. You should have the possibility to find them on LinkedIn or another portal and analyze their experience in project management.
- What are the development plans? It is worth taking a look at the roadmap. There you will find step-by-step written-out plans for the following milestones. It’s worth watching closely to see if they are implemented on time and if communication with the community is clear and transparent. There may always be some obstacles along the way, but it is in good tone to organize an AMA (Ask Me Anything) on social media and talk about what is going on internally.
- What is the technical background? Find out what blockchain the project will be based on and what solutions it will offer. Study carefully all the technicalities involved in the operation. If there are nomenclatures from the IT industry, fire up Wikipedia and see what they mean.
Finally, the most critical question: do I understand a project? Crypto projects are often visionary views of the future that are years ahead of their time in concept. If something is unclear to you, explore the topic further or find something that appeals more to you. One person may get rich investing in a new DeFi tool, and another in a Play-to-Earn game. It’s important to know what you’re investing in because, “at the end of the day”, it’s all about cashing in the asset and getting out of the market with your earnings.
How not to perform the fundamental analysis?
In addition to what to do, what to beware of is also relevant. The crypto market is vast, and project marketing can be very tricky. Just because your favorite influencer recommends something doesn’t mean it’s a profitable investment. Avoid above all:
– blind faith in the words of Internet authorities,
– magical investment strategies that promise huge returns,
– projects where the team is unknown to the public,
– signal groups where, for a few dollars monthly, you are promised that you can make a fortune by listening to a mentor,
– belief in fake news from unreliable sources.
Remember that your investment is your hard-earned money. No one will return it to you if you lose it. When you see a clear call-to-action – “invest in this” – on a particular news portal, a red light should go on in your head. The media’s description of the strengths of a given project and how it will build its value over time is perfectly fine, while a call to buy a given token may be suspicious.
We have presented you with a short set of advice on what to do and what is better to avoid. Consider them before you will buy some asset. Remember – invest as much as you can lose, and don’t take credit for investments because even if they are justified, the pressure can then lead to wrong decisions.
Did you know that Coinpaprika API can also help you with fundamental analysis? In addition to providing data for technical analysis, we also have modules such as social media stats updater – a module that fetches and updates social media stats (Twitter or Telegram followers, Reddit subscribers, Github stars). It lets you know which projects are getting the most attention. You no longer need to search manually. Coinpapika’s API will do it for you. It is just one of many modules we have prepared for you. Check to learn more – coinpaprika.com/api/