Fundamental analysis is a method used by investors consisting in analyzing the fundamental technical and economic aspects of a project. In other words, fundamental analysis takes into account the intrinsic value (real value) of a project in order to determine what drives its price to go up or down on the market, but also whether it is over or under-valued.
Let us take the example of a project that has a low capitalization, but solid fundamentals (undervalued); this could be a good investment opportunity. However, if this same project has a high capitalization, but a low intrinsic value (overvalued), this could lead investors who have a long-term approach to sell the asset, thereby causing its price to drop.
Keep in mind that this type of analysis is mainly used to predict important price movements (bullish or bearish) over very long time periods, as opposed to a short-term approach.
In the cryptocurrency and blockchain industry, fundamental analysis has to be based on a lot of public information, such as a project’s whitepaper, its real usefulness, the teams working on it, its competition on the market, and its long-term objectives (roadmap).
Contrary to technical analysis, which aims at predicting the direction that an asset’s price will take using various trading devices, fundamental analysis is about taking a step back and determining whether or not a project has the potential to stand the test of time.
Shitcoins – Projects devoid of any fundamental value
Projects that have no fundamental value are generally considered to be “shitcoins” because they don’t provide any real usefulness to the market and its different actors. Although these assets can perform impressively well in the short term, most of them end up collapsing more or less abruptly.
This is why, in order to find projects that are both ambitious and viable in the long run, it can be interesting to have a fundamental approach when analyzing them.
Moreover, if we analyze the top 50 cryptocurrencies on CoinMarketCap, we can see that more than 90% of them have very good fundamentals. This statistic will probably become even greater during strong bearish trends.
It is important to note that a cryptocurrency or a company can have excellent fundamentals at a given moment but find itself overwhelmed by certain events: better competition, hacking of the smart contract or website, departure of important members of the team, bad buzz… It is therefore always a good idea to keep an eye on the news.
The takeaway from this article is that fundamental analysis can be a very useful tool to determine the quality of a project as well as the value that it could gain in the future. It is always interesting to combine fundamental and technical analysis to strengthen your trading plan and strategy on the market.
You can read more about the fundamental analyses of many cryptocurrencies here on Coinacademy, for instance FTX token (FTT), Ethereum (ETH), and many more to come.