Before making fundamental analysis evaluations in crypto assets, it is necessary to look at where the fundamental analysis originates, which points are taken into consideration when performing the fundamental analysis, the difference from the technical analysis and what results can be presented to the person who performs the fundamental analysis in a healthy and beneficial way. Fundamental analysis is the analysis in which the value of a company is determined by using general economic factors, the sector in which the company operates, and the basic value-determining data about the company. This analysis is a very difficult analysis because it is a traditional analysis and involves many internal factors. Trying to pinpoint the current or future situation using historical charting, price, and volume data, such as technical analysis, is actually a bit easier in the highly volatile and independent cryptocurrency world. The experiences gained from traditional financial markets and the information extracted from the results of these experiences can be used in technical analysis.
The person who will make the analysis can make technical analysis independent of the asset. Fundamental analysis, on the other hand, is very intertwined with the value of the asset in the market and the state of the market. For fundamental analysis, it is quite important to know what the asset’s price is based on. Fundamental analysts also evaluate rates such as employment and GDP inflation in the economy. Then, it progresses by making sector analysis and company analysis. It looks at the company’s earnings per share and market/book value ratio. Using them, the company can evaluate the sector it is in and compare it with other companies. It is not possible to make these evaluations one-to-one in the crypto money markets as they are done in traditional markets. Due to the fact that they are decentralized products, the indicators used cannot give us much information. Therefore, it is necessary to find the criteria that will give us more accurate and detailed information and to proceed with them. For example, the number of transactions of the crypto money to be analyzed, asset addresses, token economy and technology, supply mechanisms in the market,
status can be evaluated by using a combination. It is necessary to underline the use of together. Because the criteria in fundamental analysis do not give completely accurate and detailed information by using them alone, just like technical analysis indicators. Evaluating the information obtained by using all of them together and making decisions in this direction will be the healthiest way to do before buying a crypto asset.
Fundamental Analysis Criteria with Crypto Assets
Criteria for Chain and Network
Some of the criteria in fundamental analysis are chain-related metrics. These are the number of transactions in the chain, transaction value, active addresses on the chain, fees for transactions paid, hash rate, etc. criteria are important. The number of transactions is an important criterion that shows the movements on the network. We can determine how these movements have changed over time by charting them or taking their moving averages. But of course, the increase in the number of transactions does not always indicate to us that on-chain activity is increasing. A person may be making transfers between wallets to increase this efficiency. This is a situation that needs attention. Another criterion for processing is the value of the transaction. It shows how much value it traded during a specific time period. We can measure this value in a fiat currency or in local units (e.g. eth, btc, etc.).
Active addresses are the
addresses during the specific time period for which we are doing the analysis. It can be done by counting both the sender and receiver of each transaction in that time interval. Increasing the number of active addresses increases the efficiency of the network.
The transaction fees paid are also an important indicator. A change in the transaction fee may result in a decrease or increase in the demands on the network used. This is always important for both the investor and the miner. Large Proof of Work blockchains offer a block reward. In some chains, this reward consists of a block allowance and transaction fees. This reward is reduced over time. Increasing mining costs but decreasing the block allowance over time will increase transaction fees. Otherwise, there may be problems such as miners leaving the network.
The hash algorithm is one of the other important criteria. A very important role is played by the security of the network. Hash rate is one of the commonly used metrics to measure network health in Proof of Work cryptocurrencies. The higher the hash rate, the harder it is to launch an attack. It’s important to be strong in the face of a 51% attack. (A 51% attack is a possible attack against a blockchain network by a single person or organization taking control of the majority of the hash rate and causing disruptions to the network.)
One of the most important financial indicators of crypto assets is market capitalization. This value is found by multiplying the current price and the circulating supply. Basically, this can be called the fee that must be paid to buy all units of the asset, of course, this fee is hypothetical. This value can be misleading in some cases. A strong value should be put in the middle so that the market is interested in this token and it becomes a token that holds in the market. By looking at the crypto supply, it can be seen how much this market value reflects reality. By looking at this value, it is possible to understand the growth potential of crypto. But of course, the use of alone as other criteria is not right for a healthy investment.
The trading volume gives us important information regarding crypto. In the charts it is possible to examine the volumes of the day or for different time periods. These volumes also provide us with liquidity insights. The investor is faced with the situation that the price is different without investing or when selling the product in his hand. In this case, he may want to wait and trade in a different time frame. To access this accurate time, it is worthwhile to study the liquidity and volume state of crypto. Because you can determine the market’s demand for the investment of that crypto.
In addition to demand-related criteria, supply-related criteria are also very important. Maximum supply, inflation, circulating supply rates help when making investment decisions. If we look at it from the basic logic, the increase in the demand of some coins but the limited supply of these coins can be made more attractive. For example, the limited supply of bitcoin increases its value day by day and attracts investors. This logic can lead to saving crypto money instead of using it
If you have previously entered a cryptocurrency’s own site, it is possible to see its whitepaper there. The whitepaper gives us an overview of the cryptocurrency’s project. It should contain information such as the technology used, the use case it aims to serve, the roadmap it prepares for updates, and the distribution plan for coins or tokens.
Another important indicator is the team behind the project. The experiences of the members of this team, the success of their previous projects can be examined. In line with these, it can all be learned whether a successful project or the team has a chance to be a fraudster. If you don’t have a team behind it, you can look at your public githup and find out its effectiveness.
The token economy is also an important metric. Tokens can be created for many purposes. It is important to examine these purposes. The fact that the token is the purpose of its emergence and use does not always mean that it will be an effective use. It matters whether this purpose will be recognized by a wide market or how much this purpose will be valued. Whether this project will solve a specific problem is also an important issue.
When doing fundamental analysis in cryptocurrencies, you should look at the big picture and use all of the criteria together. Rather than commenting on the market capitalization of a cryptocurrency alone, it is important to look at the impact of that market capitalization on the number of active addresses, trading volume, or liquidity, and whether these effects push other investors to make investment decisions. Because if this investment decision is not directed to the crypto money you are examining, it will be directed to other crypto coins in the market with strong features. This will increase the value of those cryptocurrencies and bring you profit if you have invested in them. Evaluating them with fundamental analysis and actually reaching the real value of crypto money will provide us with very important information. The fact that they differ with technical analysis allows them to be used together instead of preferring one and to further increase its effectiveness. Therefore, today’s investors can use the two together to make healthy analyzes and profitable investments