With fundamental analysis, you evaluate investment opportunities based on a company’s underlying financial and economic factors and then make informed decisions about potential risks and rewards. It is used to determine the intrinsic value of a company and its assets.
As part of the analysis, the basic data for an asset is considered first and foremost. These include, for example, the profit achieved, the return on equity or the balance sheet total. For this reason, fundamental analysis is particularly suitable for long-term investments. With the collected data, you want to assess whether a (crypto) company achieves good results in the long term and is therefore a good investment.
In addition, fundamental analysis can be used to analyze the macroeconomic conditions that affect your particular investment. This is based on statistical data points that are more or less publicly available. These macro data points are just as important as a company’s fundamental data.
The factors of fundamental analysis
The basic analysis thus distinguishes between micro factors (company-specific contexts) and macro factors (macroeconomic contexts).
Some of the factors that fundamental analysis takes into account are:
- The team: How experienced are the managers and employees and what is the career path of these people?
- Macro factors include broader economic and industry trends. They play a similar, if not greater, role in a company’s potential growth.
- Growth opportunities, expansion plans and product development.
- Financial reports such as income, balance sheet and cash flow statements for a business. They are among the company-specific data points and help assess a company’s profitability, liquidity and financial health.
Although the above factors are also relevant to cryptocurrencies, they offer some distinctive characteristics. Unlike the analysis of classic assets such as shares, some crypto-specific factors can be used in cryptoanalysis.
These factors for evaluating crypto projects include:
- Total Cryptocurrency Supply: Some cryptocurrencies have very low total supply, e.g. B. Bitcoin with 21 million coins. Other currencies, on the other hand, have an infinite total supply, including Dogecoin.
- Cryptocurrencies are constantly being created. Some cryptocurrencies (such as Dogecoin) are highly inflationary and many units enter the market daily. Other cryptocurrencies (like Ethereum) are almost deflationary, which can have quite a positive effect on appreciation.
- Regulations and cryptocurrencies are a sensitive topic. It is therefore important to assess whether the crypto company in question complies with regulatory requirements. If this is not the case, regulation can stamp the project into the ground in no time at all.
This is how fundamental analysis works
Fundamental analysis assumes that the price of an asset approaches and fluctuates around its intrinsic value. Part of the analysis refers to the past, it is diagnosed.
Another part of fundamental analysis is the forecasting part. Here, one would like to try to predict the future development. This must be done in order to move efficiently in the market and achieve the highest possible return.
In fundamental analysis, the determined value is compared to the current stock or crypto value. This is how you try to determine whether the respective investment is undervalued or overvalued. From this, in turn, you can deduce which cryptocurrencies, companies or industries you should invest in.
Practice makes perfect
But nothing is set in stone in the market, and even the best fundamental analysis can make wrong forecasts. It is an inherent part of a crypto career that investments do not go as planned. In the market, you only play with probabilities. You should therefore always be prepared to make mistakes and take the necessary safety measures.
The crypto market in particular is subject to extreme price fluctuations that are unpredictable. Therefore, fundamental analysis should only be part of your crypto strategy. In addition, you should consider other factors such as market psychology, technical analysis and risk management.
An investment in knowledge gives the best return
Therefore, there are numerous learning platforms that provide materials on trading, crypto and investing. If you are interested in this, you can, for example, take a look around the Binance Academy. There you will find the answers to the most important questions you should know about crypto trading as a beginner.
In Binance Academy you will find answers to the most important questions about trading, Bitcoin, blockchains, NFTs, metaverse, gaming and much more so that you too can master the cryptocurrency landscape.
Get a 10% discount on your newsletter subscription
Applies to BTC-ECHO magazine in trial subscription, annual subscription or for single issue. Register now!
For the newsletter
Sponsored posts are paid articles for which the advertiser is solely responsible. BTC-ECHO assumes no responsibility for the promised services or investment recommendations.
The latest issues of BTC-ECHO Magazine
You may also be interested in this