Fundamental analysis is a method of evaluating an asset in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors. Measuring the intrinsic value allows investors to determine whether a digital asset is overvalued or undervalued and hence fundamental analysis is an imperative process for investors to undertake when deciding on potential investments. Long-term investment without fundamental analysis is no better than gambling.
Here are four fundamental values to help you define the market price of a cryptocurrency and whether or not to invest your capital.
There needs to have a useful purpose (utility) for the coin in order for it to have a functional intrinsic value. If there’s no real reason for users to buy it, the market price will fall as soon as investors lose interest.
Questions to ask when judging a coins utility potential.
Is there a real-world problem that the company is trying to solve?
Will their proposed solution drastically improve the way things are currently done?
Will the currency attached to this project provide functionality which only a cryptocurrency can deliver?
Is there a tangible benefit to using a cryptocurrency for this solution as opposed to a cheaper, faster, easier to create non-blockchain technology?
Does the company have any pre-existing businesses, apps or products that you can review and, if so, are they any good?
2. Market Potential
If a coin is useful, but only one person needs it, the demand will be too low, and its price will fall to zero. There needs to be a significant market for the currency to flow through, to create enough volume to drive demand.
Questions to ask when judging a coins market potential.
Are there enough potential users of this service to drive stable demand for its currency?
Is this company well positioned in its selected industry?
Is it a growing industry?
Is this company the one most likely, amongst its competitors, to succeed at creating a blockchain solution for the problem they’ve identified?
Are you satisfied that there are no foreseeable changes to society or technology that will alter the need for the company’s proposed solution?
3. Adoption Strategy
Having an idea that can change the lives of billions of people doesn’t matter if it’s never finished, or if it’s finished and never used. Adoption strategy is the connector between ideas and results. It’s the bridge between dreams and reality.
Questions to ask when judging a coins adoption potential.
Does the company’s roadmap outline a sound strategy towards gaining users?
Does the company have a sound marketing strategy?
Is the company currently on track with their roadmap?
Do they have a good track record of achieving their milestones on time?
Based on their experience, do the team demonstrate the ability to achieve their roadmap and market their project?
4. Room to Grow
Financial investment helps projects develop a functionally beneficial service, it gives them the resources to capture their target market, and it fuels their adoption, however if the first three above factors aren’t in place, no amount of financial investment can make a project successful in the long-run.
Questions to ask when judging a coins room to grow.
Is the currency undervalued? Is its market cap low? Is its trading volume low? Is there room to grow?
Are the milestones listed on their roadmap newsworthy? Will their successful completion create hype and demand?
If the company was to solve its selected problem, would the solution be newsworthy, profitable and useful to society?
Will the solving of this problem create demand for the cryptocurrency?
Assuming that 90% of projects will fail, do you believe this cryptocurrency will still exist in 5 years time?
You will find that the answers to the above questions are readily available, provided that you are willing to search. Here are 6 places you can find the information you need:
The company website
The community, Telegram, Discord, GitHub
And remember …..Long-term investment without fundamental analysis is no better than gambling.