Traders make use of several analysis techniques to analyze the market before making trading decisions, and in our previous publication we have talked about the four types of cryptocurrency market analysis which Fundamental Analysis (FA) is part of.
Now we are going to discuss Fundamental Analysis in detail, and the key metrics that make up a solid fundamental analysis.’
What is Fundamental Analysis (FA)?
The theory behind fundamental analysis is that if a project's present or future potential appears to be promising, its value should increase. FA differs from technical analysis because it requires examining macroeconomic data, news headlines, and so on.
Key Metrics to Inform Fundamental Analysis
Here are top insight metrics to look out for when doing an FA.
#1 Market Cap
The market capitalization is the total value of the coin or token. This is calculated by multiplying the price of the cryptocurrency and the number of coins in circulation.
#2. Social Metrics
Marketing is very vital for every business, and the purpose of marketing is to spread the word to attract more investors and members. If a project's marketing is poor it is going to reflect in the price of their assets. So you want to look at how effective a project marketing campaign is before investing.
Volume is the rate at which the token is being traded. A higher trading volume signifies growth and adoption, and is often linked with a high number of holders. High volume is also responsible for Liquidity, which allows for easier interconversion between currency pairs.
Tokenomics is the understanding of the supply and demand of a token within the project ecosystem. It includes token distribution as well as how they can be used to secure and incentivize the community.
#5. Total Value Locked (TVL)
Aside from market cap, total value locked (TVL) is an important metric to look out for in a crypto project. You can calculate the total value locked in a DeFi protocol by taking the total number of tokens staked on that protocol and multiplying that total by the current value of each token in USD.
#6. Team Members
Every crypto project has a team, and it is necessary to check on the team strength and track records to be sure that they can deliver a successful project. The stronger the team, the stronger the project. If the team consists of people with bad track records, then you should be concerned.
#7. Community Size and Engagement
Cryptocurrencies are driven by community, which in turn brings about adoption. If there’s no community, there’s no crypto. So a project's community strength strongly determines the success rate of the project.
A crypto whitepaper contains information about the project such as project background, engineering, tokenomics, etc. The goal of this document is to convince prospective investors to invest in that cryptocurrency. For any crypto startup, releasing a whitepaper is a way to be considered professional and legitimate.
#9. Use case
This is all about utility — what problem is the project aspiring to solve, this in turn brings more revenue for the project that amounts to growth. It’s wise to seek a project with a good use case.
Understanding these fundamental analysis metrics will go a long way to help you study the market, and make informed trading or investing decisions.