Trading Education

The Essences of the Fundamental Analysis on the Cryptocurrency Market

The Essences of the Fundamental Analysis on the Cryptocurrency Market 

Fundamental Analysis (FA) is a valuable tool in the digital currency trading market. This business review process examines key qualitative and quantitative indicators to determine its financial condition and assess investment opportunities. FA takes into account several factors and examines the risks of price changes in the future.

Many investors and traders use fundamental analysis to determine future market behavior, studying the following:

  • Project’s Idea. The technology behind the brand name of the project must have a powerful, applicable solution that meets market requirements. When there are clear competitive advantages of a product, only then it attracts the public and expands further opportunities.

  • Owner & Team. The central element of any company. The future and success of the project depends on their experience and determination.

  • Demand & Activity (Reputation). The constant interaction of the company with the public, an active position in the market, phasing, and timely steps taken to implement the technology allow it to build a positive reputation and it’s own image.

  • Market Cap. This important factor is often taken into account when deciding whether to trade/invest or not. The result of high market capitalization is a high demand and liquidity.

  • Marketing Capabilities. Marketing support is extremely important for the development of any project. No matter how good the product is, proper informational support of the project is necessary. Drawing from this tool, the pace of development of the project and its successful application is predetermined.

  • Other Economic Factors. Like the overall economic situation, regulatory framework impact, and so forth.

Fundamental analysis takes into account both microeconomic and macroeconomic conditions that may affect the particular market. This is of special value in cases where there are implicit factors, for example, such as the previous experience of business enterprises in the market. FA applies to all types of assets and its main goal is to determine whether the price of an asset is overvalued or underestimated.

Advantages: Good for long-term investments, Complete 360-degree analysis, Quantitative in nature, Reliable Results.
Drawbacks: Time-consuming, Complicated Data Access, Not suitable for quick decisions.

The Contrast of Fundamental Analysis & Technical Analysis

When comparing the fundamental analysis and technical analysis (TA), it is revealed that FA gives a more complete picture of the price of an asset by analyzing as many influencing factors as possible, while (TA) focuses on historical data and graphs. TA is a tool to predict a price action based on trade volume and past trends. Both analyzes have their value for both investors and traders. Often, the first ones rely on FA more frequently, while traders prefer TA tools. To identify a comprehensive view, the most appropriate application is the balanced combination of both fundamental and technical factors, such as relative price strength or market mood.

On a Final Note

Care should be taken to the existing fundamental analysis and proceed from quantitative reports, avoiding possible bias. There is lots of information to absorb but it is mainly the question of knowing where to find. An effective analysis result is achieved only through a comprehensive analysis of companies and the market. As a result, the most appropriate improving/deteriorating trends within sectors and industries, and future earnings/cash flow potentials are ultimately identified.