How to Perform a Fundamental Analysis of Crypto? [2024]
This paper identifies the importance of making proper investment decision as the market for the virtual currency expands. Learning about how to perform a fundamental analysis of crypto? is important for anyone who wants to factor in the possibility of investing in digital assets besides just their price direction. Technical analysis, on the other hand, has brought in the idea of analyzing various parameters that are essential for the valuation of a crypto coin by analyzing its technology, team behind the project, the market need for the particular coin and the ecosystem it is based on. In this blog post, your complete step-by-step guide for performing fundamental analysis of cryptocurrency is presented with practical examples and trading tips.
Project Evaluation: The Team Behind the Solution
The first method of conducting a fundamental analysis of crypto is to take a closer look at the team behind the project. I believe that the further evolution of any cryptocurrency project will primarily depend upon the background, skills and track records of the developers, advisors and the management team involved with the project. A good team will be very beneficial to your project credibility and potential while lack of a good or experienced will create doubts on your project.
For instance, a factor that has helped the Ethereum project to succeed is leadership of Vitalik Buterin, the co-founder of Ethereum. Buterin had outlined an idea of world computer which is decentralized and his knowledge of blockchain is very helpful in developing Ethereum. Furthermore, there is the Ethereum Foundation that backs the project: there are many experienced developers and advisers who contributed to the project’s development at the organizing level. Due to the contributions of this great team, Ethereum stands as one of the most valuable and popular blockchains in the world today.
Another example is Cardano; this is a blockchain platform which is developed by IOHK with a leader, Charles Hoskinson, who was also among the co-founders of Ethereum. Hoskinson’s background in the crypto space, combined with the experience of IOHK’s research-oriented brain trust, have made Cardano the premier platform for dApps and smart contracts. Having academic research and peer-reviewed development, the team has attracted much attention and trust among the crypto community that has helped in building an ecosystem and increasing market capitalization of Cardano.
The next factor, which should also be considered while assessing a crypto project, is the team which works on its creation, their track records, and their position at the project. Search for information sharing; often updates and interactions with the community in addition to the timelines within the development of the project. An efficient and a highly qualified team with past record of its successful ventures can be often used as signal of a particular cryptocurrency’s prospects.
An Examination of the Use Case and Market Need
Another very important factor in studying how to conduct a fundamental analysis of crypto is understanding the value proposition of the cryptocurrency as well as its market niche. This means that the value of a cryptocurrency in the market is in a direct proportion with the needs of the target problem, and the extent to which the cryptocurrency fulfils the need. That is why use case is so important, because a large and growing market will push for adoption and therefore increase the value proposition of the cryptocurrency.
For example, there is Chainlink – it is a decentralized oracle that supplies secure real-world data to smart contracts on different blockchains. The requirement of correct, trustworthy, and secure data feeds in DeFi and other blockchain-based solutions have emerged as considerable customers for Chainlink. Hence, Chainlink has aligned with many projects in the DeFi sector to supply data oracles for such platforms as Aave and Synthetix. This gives Chainlink a strong use case and as the demand for oracles increases in the DeFi industry; it explains the higher market value and popularity of Chainlink.
Likewise, Binance coin (BNB) which is associated with the Binance exchange has a well-defined purpose, which is as a utility token for the Binance ecosystem. BNB is applicable in paying transaction fees on the Binance exchange, purchasing token sales on Binance Launchpad, and unlocking characteristics inside the Binance ecosystem. This is due to increased trading of cryptocurrencies at Binance which has grown in the world’s largest cryptocurrency exchanges taking a position in BNB driving the prices up. By end 2024, Binance Coin rose to the list of the 5 largest cryptocurrencies by market capitalization due the its utility and growing acceptance in Binance’s ecosystem.
Regarding the use case corresponding to a cryptographic currency, one should include the problem that the related currency solves, the addressed market’s size, and its future growth potential. It is also important to state that the long-term prospects for a cryptocurrency will be much brighter if that currency has a definite and valuable application for consumers in addressing this need.
Viability Analysis of the Technology and Innovation
Another aspect of knowing how to carry out an analysis of the crypto is evaluating the technology and innovation related to the crypto currency. Decentralized systems that constitute the basis of a particular cryptocurrency regulate its functional capacity, defense, adaptability for further usage, and possibilities. It becomes crucial to note that projects that offer new ideas and services within the context of blockchain or enhances the existing technology models usually stand a better chance at success.
For instance, Solana is a layer one blockchain that aims for fast transactions with low fees made possible by the said Proof of History (PoH) consensus. According to the details explained in the Solana network document, single transactions take significantly less time to process due to the high TPS (Transactions per Second) capability of Solana. This scalability has seen more and more DeFi projects, NFT, and dApps choosing the Solana ecosystem to deploy. The continuous growth of Serum, a decentralized exchange, built on Solana, and the appearance of Solana-based NFT projects like Degenerate Ape Academy in 2021 were examples of the application of Solana’s technology and contributed to Solana’s massive increase in market share.
Yet another current technology is Polkadot which describes itself as a ‘Web 3. 0’ blockchain that connects blockchains. Polkadot has a multifaceted structure, in which several blockchains called parachains can work simultaneously and exchange data safely. Such integration is attained through the Polkadot’s Relay Chain through which the consensus and communication take place among the parachains. Polkadot has made itself as the candidate of blockchain’s next generation due to the ability to link the various blockchains and establish a network of interconnected chains. More so, there are other projects such as Acala, a DeFi platform, and Moonbeam, a smart contract platform, that have selected to be developed on Polkadot, asserting to the reality of Polkadot’s technological advancement.
Some of the criterion used in evaluating the technology of a cryptocurrency include scalability, security, Consensus, and the possibility of upgrade in the near future. It is postulated that projects with new principles or approaches to efficiently address existing problems in the blockchain field are more attractive to developers, users and investors, thereby meant to foster increased adoption and value.
Taking a look at the Tokenomics and Supply Distribution
The final essential characteristic on how to perform a fundamentals analysis of crypto is understanding the tokenomics and supply factors of the Bitcoin. Tokenomics, in a nutshell, can be described as the economic parameters of the token such as the total number of tokens in circulation, token distribution, token inflation rate, and use of the token in the given ecosystem easily. Knowledge of these factors can be useful to predict the further increase in the price and the viability of the project.
For instance, Bitcoin’s token supply is capped at 21 million with a gradual reduction in the maximum number of new tokens produced each year because of halvings that occur every four years or so. This scarcity, coupled with the growth in demand of this currency has in fact aided in the upward trend of the Bitcoin price. Due to the deflationary properties of the supply of Bitcoin and its storage characteristics, bitcoin received the nickname “digital gold”. Thus, with the involvement of more and more institutional investors and corporations, including MicroStrategy and Tesla, the scarcity of Bitcoin led to an increase in its price.
However, it is worth to note that Ethereum has different tokenomics than Bitcoin since it does not have the certain defined supply, but has certain issuance rate. Nevertheless, these problems are already headed toward their solution as the development of Ethereum 2. But since then and in particular due to the introduction of the EIP-1559 upgrade in May this year, Ethereum’s supply dynamics have changed. In the EIP-1559 upgrade, there was an option of burning a portion of transaction fees as a way of minimizing the ETH supply. This deflationary effect, coupled with the peculiarity of staking in Ethereum 2. This has shifted the thinking of the community especially institutional investors towards embracing Ether (ETH) as a long-term investment asset with a current market value of 0. Increased interest in Ethereum for DeFi, NFTs and other applications helped to drive demand, adding to the price increase.
Token distribution and supply: When reviewing the tokenomics of a cryptocurrency consider the total token supply, its distribution, its rate of inflation and any factors that would in anyway influence the supply by means of a burning or staking process. A proper token distribution that shows how many tokens will be created and when they will be released helps to ensure the token’s longevity and its increase in price.
Research on the community and ecosystem in order to understand the situation.
There is also the aspect of analyzing the community and the ecosystem associated with the crypto as a method of gaining an understanding in how to execute a fundamental analysis of crypto. The active participation and contribution of this community can further the adoption, developmental processes as well as create new products and services within the ecosystem that could eventually lead to the continuous sustainability of the specific project in question.
For instance, the decentralized nature of development of the Bitcoin has made it harder for adversaries to bring it down, or hinder it from growing over the years. Thus, the reported major challenges like scaling debates and the creation of forks, the Bitcoin community continues to uphold decentralism and security. The use of the dollar has been promoted by the community of Americans and supported by its development team and miners, same as Bitcoin is promoted and backed by developers, miners and its community of users.
Likewise, Ethereum was blessed with an active developer community which has been decisive for the expansion of Ethereum environment. Such DApps as decentralized exchanges, DeFi, and NFTs in Ethereum have been created thanks to the efforts of a worldwide group of developers and dedicated users. These types of applications such as GitHub that hosts all Ethereum code have promoted cooperation and growth among participants in the ecosystem. Mechanisms such as ethereum improvement proposals has also made it possible to have the active participation of the community in governance to ensure that the platform is well developed to suit the desire of every user.
Another example is the Cardano community that recently gained significant traction mainly because of its Academic Development and the preference for peer-reviewed work. Cardano has been designed in a way that doesn’t regularly issue new tokens for product launches like other blockchain development companies and has cultivated a community of developers, researchers, and enthusiasts to build the infrastructure for the platform. This involvement has been duly useful in creating awareness about the platform to the general public and possible users of Cardano. It is also vital to consider the level of activity of the community, the quality of the contributions made and general backing given to the project as part of the cryptocurrency ecosystem analysis. A vibrant community will always contribute towards the development of the product, the uptake and sustainability of the cryptocurrencty.
Conclusion: How to Perform a Fundamental Analysis of Crypto?
It is crucial to understand how to perform a basic Crypto analysis for any investor willing to invest in this ever-growing market. With the evaluation of the project’s team, understanding of the use case and market need, estimation of the applied technology and novelty, TOKENomics analysis, and examination of the community and ecosystem, you can get a proper grasp of the intrinsic value of a cryptocurrency. Ethereum, Bitcoin, Solana, Cardano are some of the real-world cases that show that it is crucial to evaluate every cryptocurrency on the market to decide whether it is viable to invest in it or not. Implying that fundamental analysis is the key you can get into the crypto market and begin to search for such investments that have potential benefits, as well as value appreciation in the long-run.
