Fundamental Analysis in Crypto Trading
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Before investing in cryptocurrencies, it is essential to determine the type of trader you are and the market analysis strategy you want to use to make your trading decisions. Some of the most popular ways to analyze the markets include technical analysis, sentiment analysis, and fundamental analysis. In this article, we will focus on how you can benefit from fundamental analysis in your crypto trading.
What is Fundamental Analysis?
Fundamental analysis is a method used by investors to determine the value of a financial security by focusing on underlying internal and external fundamental factors. Based on this analysis, you can then decide whether the market is currently under or over valuing that asset, and therefore whether there are opportunities to buy (asset undervalued by the market) or sell (asset overvalued by the market).
Fundamental analysis also means considering the latest news, or economic reports that are published, that may have a significant impact on the price of the given asset. News trading is one of the most popular trading techniques among active traders.
It is possible for investors to take advantage of interesting investment opportunities with fundamental analysis, no matter how you trade – on desktop, on mobile via iOS trading apps, or on a web-based platform.
How to Use Fundamental Analysis with Cryptocurrencies?
Since fundamental analysis is based on determining the intrinsic value of an asset, it is important to look at certain indicators and metrics that help determine the true value of the given asset. In the case of cryptocurrencies, classical fundamental analysis cannot really be used. This is due not only to its volatility, but also because it’s a relatively new market, whose fundamentals are not yet well defined.
The first thing to do is to focus on the network and determine which metrics will help you get a full picture of the network. When talking about on-chain metrics, you can give a look at transaction value, transaction cost, transaction count, active addresses, average exchange deposit with exchange inflow and outflow, miner transfers to exchanges, hash rate, the total amount staked, etc.
Then you can focus on the blockchain project and the related cryptocurrency. So you can read as much information as possible using the whitepaper and other documents such as roadmaps, get to know the team, the project vision, the disruptive potential of the cryptocurrency or blockchain, the strategy, the potential users, the competition, the ICO, etc.
Finally, you can look at the financial metrics concerning the way the token is currently traded: price, market capitalization, the exchanges where it is available for trading, liquidity, volume, maximum supply, inflation, circulation supply, etc.
If you succeed in implementing a relevant and complete fundamental analysis strategy, you will get a good vision of the project, its potential, and whether it is over or undervalued by the market. Thus, you will be able to take advantage of the opportunity to invest in tokens, whose real value is quite different from the market value. Some crypto traders also use technical analysis as a complement to improve the timing for entering and exiting the market.