Course Content
A Guide to Cryptocurrency Fundamental Analysis
Crypto fundamental analysis involves taking a deep dive into the available information about a financial asset. For instance, you might look at its use cases, the number of people using it, or the team behind the project. Your goal is to reach a conclusion on whether the asset is overvalued or undervalued. At that stage, you can use your insights to inform your trading positions.
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A Guide to Cryptocurrency Fundamental Analysis
About Lesson

Where on-chain metrics are concerned with observable blockchain data, project metrics involve a qualitative approach, which looks to factors like the performance of the team (if any exists), the whitepaper, and the upcoming roadmap.

The whitepaper

It’s highly recommended that you read the whitepaper of any project before investing. This is a technical document that gives us an overview of the cryptocurrency project. A good whitepaper should define the goals of the network, and ideally give us an insight into:

  • The technology used (is it open source?)
  • The use case(s) it aims to cater to
  • The roadmap for upgrades and new features
  • The supply and distribution scheme for coins or tokens

It’s wise to cross-reference this information with discussions of the project. What are other people saying about it? Are there any red flags raised? Do the goals seem realistic?

The team

If there’s a specific team behind the cryptocurrency network, its members’ track records can reveal whether the team has the required skills to bring the project to fruition. Have members undertaken successful ventures in this industry previously? Is their expertise sufficient to reach their projected milestones? Have they been involved in any questionable projects or scams?
If there is no team, what does the developer community look like? If the project has a public GitHub, check to see how many contributors there are and how much activity there is. A coin whose development has been constant may be more appealing than one whose repository hasn’t been updated in two years.

Competitors

A strong whitepaper should give us an idea of the use case the crypto asset is targeting. At this stage, it’s important to identify the projects it’s competing with, as well as the legacy infrastructure it seeks to replace.

Ideally, fundamental analysis of these should be just as rigorous. An asset may look appealing by itself, but the same indicators applied to similar crypto assets could reveal ours to be weaker than the others.

Tokenomics and initial distribution

Some projects create tokens as a solution looking for a problem. Not to say that the project itself isn’t viable, but its associated token may not be particularly useful in this context. As such, it’s important to determine whether the token has real utility. And, by extension, whether that utility is something that the wider market will recognize, and how much it would likely value the utility at.
Another important factor to consider on this front is how the funds were initially distributed. Was it via an ICO or IEO, or could users earn it by mining? In the case of the former, the whitepaper should outline how much is kept for the founders and team, and how much will be available to investors. In the case of the latter, we could look to evidence of the asset’s creator premining (mining on the network before it’s announced).
Focusing on the distribution might give us an idea of any risk that exists. For instance, if the vast majority of the supply was owned by only a few parties, we might reach the conclusion that this is a risky investment, as those parties could eventually manipulate the market.
Exercise Files
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