What really Is Fundamental Analysis In Crypto Trading? Three Essential Metrics Defined

What really Is Fundamental Analysis In Crypto Trading? Three Essential Metrics Defined

If you're going to go into crypto trading of any type, you'll need to know the basics.

Before investing in any cryptocurrency, you should do a basic study to have a better understanding of what is going on on the blockchain network.

To succeed as a crypto investor, you must be able to do technical and fundamental analysis. While technical analysis techniques and procedures are comparable in crypto trading to those used in forex, equities, and many other markets, the factors employed in fundamental analysis are significantly different.

So, what should you think about while conducting a basic examination of a cryptocurrency project?

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What Is Fundamental Analysis and How Does It Work?

Fundamental analysis is a financial market analytical tool for determining an asset's fundamental worth. It takes into account a variety of internal and external elements that might influence an asset's price in order to evaluate whether it is overpriced or undervalued.

Fundamental analysis, as contrast to technical analysis, which uses historical data to forecast future occurrences, is more of a big-picture approach that considers data such as the crypto user community, financials, real-world application, and future use.

Most decentralized finance (DeFi) apps, for example, are built on the Ethereum blockchain. If you feel DeFi has a future, this might signal that Ethereum's value will increase over time.

The Crypto Fundamental Analysis Framework

The crypto market's short-term volatility and massive long-term growth have made basic research extremely crucial. Thousands of crypto projects have failed in the market, and new ones are being offered all the time, keeping the market lively. A solid understanding of crypto principles can aid you in determining the value of a token prior to investing.

Three major indicators are used in the framework for basic crypto analysis: Onchain, Project, and Financial.

1. Metrics from the supply chain

Crypto platforms have protocols in place that make it simple to obtain blockchain and network data. These technologies save you the time and effort of manually gathering this information. First, let's take a look at several key cryptos' on-chain stats.

Fees and Transaction Value

A currency that has been in circulation for a long time will have a continuous high transaction value. When you compare the circulation rate over time, you'll have enough information to forecast future market moves.

There are transaction fees on several blockchains. Fees, such the gas fees paid on the Ethereum blockchain, represent the needs of transactions paying to be added to blockchains as quickly as possible. You may get a notion of how secure a token is if you have access to information about the fees. Crypto miners will begin to work at a loss and withdraw from the blockchain if transaction fees and block rewards rise.

Current Address

On a blockchain, active addresses are addresses that are currently in use. To do so, you'll need to count the numbers of both the sender and the recipient of transactions over a period of time. You may also analyze the amount of unique addresses over time to determine how active and interested a crypto is. Cryptocurrencies with a higher level of interest have a greater potential.

Staked Amount and Hash Rate

Proof of work and proof of stake are the two most common cryptocurrency consensus algorithms. Both Bitcoin and Ethereum employ proof-of-work, which measures network health using the hash rate. A high hash rate indicates a system that is more secure and tougher to break. When the hash rate drops, though, crypto mining activity may drop as well, especially if miners deem it unprofitable. Investors are less interested in crypto assets with a lower hash rate.

Transaction validators stake their holdings in the process of block validation for a cryptocurrency that employs a proof of stake method. The number staked at any particular time may also represent the level of interest in a crypto asset.

What really Is Fundamental Analysis In Crypto Trading? Three Essential Metrics Defined

2. Metrics for the Project

A qualitative technique to judge how well a cryptocurrency project is going is to use project metrics. We'll look at various features of cryptocurrencies in this part, such as its purpose and how it operates.


Before investing in any project, you must read the whitepaper. The whitepaper is a technical report that provides an in-depth look at the project. This paper provides the project's goals, how to achieve them, use cases, supply quantities, technology employed, and a lot more valuable information. Checking out the whitepaper is only one of the things people mean when they say "do your own research" before investing.

The Group

Customers and financial sponsors have faith in the project's team of individuals working on it. Information about the team members, such as their experience, competency, and public profiles, might assist you in determining their credibility.

Use Cases and Tokenomics

Supply and demand in the market affect the value and price of cryptocurrencies. The price will rise in direct proportion to demand and supply. A component of tokenomics is the incentive structure used to reward activity on a network.

The value of a token is determined by the functions it can perform. It's possible that a currency with more real-world applications may attract more users and attention. Irrelevant tokenomics and a cryptocurrency with no clearly defined use case are also warning flags.

3. Financial Indicators

These figures pertain to the cryptocurrency market's money flow. In fundamental research, market capitalization, liquidity, volume, and other associated data are valuable tools.

Capitalization of the Market

The market capitalization is calculated by multiplying the total number of tokens in circulation by their current price. The market capitalization value of a network indicates its worth; you may use this measure to determine how old a project is and its development potential.

Availability of funds

Liquidity is defined as the ease with which an asset may be exchanged. If a bitcoin asset can be purchased or sold fast without altering its market value, it has high liquidity. In an order book for a cryptocurrency coin or token that is easy to trade, there will be a large number of buyers and sellers.

Amount of volume

The trading volume of a token predicts how well it will maintain its value over time. This metric shows how many individual units of an item have been exchanged throughout the specified time period. An upward trend with high trading volume will almost certainly endure longer than one with low volume.

What really Is Fundamental Analysis In Crypto Trading? Three Essential Metrics Defined

Don't Just Concentrate on Fundamental Analysis

Fundamental analysis will provide you with a more comprehensive view of what is going on in the crypto markets. It will provide you with information that will assist you in distinguishing valuable tokens from ones with little potential. However, employing it as a stand-alone technique of analysis is not recommended.

Fundamental analysis alone will restrict you, just as it will limit you in the stock and currency markets. You must develop a solid approach that incorporates both fundamental and technical analysis. You'll be able to spot coins with potential and timing your trade entry and exits better if you do it this way.


Freelance writer with a passion for EarlyInfo Website. Keeping up with the latest news, pondering on the essence of life, and thinking about new business opportunities. Most productive when Drink Coffee.

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