My Complete Guide to Cryptocurrency Fundamental Analysis

  • Andrew Strogoff

    In terms of forecasting markets, it gets a little more complicated with the fundamental analysis, but it is easy enough to grasp

My Complete Guide to Cryptocurrency Fundamental Analysis
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Hello, my dear readers. This is Andrew Strogoff and today I am going to tell you about the fundamental analysis in cryptocurrency trading. I am sure that many of you have already heard something about this method. However, for the majority of beginner traders, fundamental analysis is a very difficult forecasting method. I am going to describe it and show that everybody is able to use it along with the technical one.

Fundamental analysis has a long history as it was used on financial markets for more than 100 years already. You can apply it to all the financial assets starting from stocks and commodities including cryptocurrencies.

What is cryptocurrency fundamental analysis

This forecasting method allows users to predict the price of digital assets long-term. Those who use this analysis method, need to consider all the available information and to deeply examine all factors that may influence cryptocurrencies, including those, which may affect markets within large timeframes.

Fundamental analysis is useless in short term. Investors apply this forecasting method once they want to get the general picture of any asset’s value. However, it is useless to predict for years as cryptocurrency market changes in a very fast manner.

Traditional fundamental analysis appeared on the US stock market and was applied first by Benjamin Graham and David Dodd. They have offered the following points:

  1. Every asset’s price changes due to some certain reasons.

  2. The reasons of price dynamics can be found when analyzing the asset in details.

  3. Every news or event has its consequences, which affect the price.

  4. If one knows all the facts and can make the right decision, he is going to predict future asset’s price.

Those points can be used for cryptocurrency trading as well. However, when fundamental analysis adepts appeared in this industry they had to adopt their method to the cryptocurrency market features as there were no traditional tools that may be used to predict prices there.

Moreover, cryptocurrencies have some other specifics and are similar to both currencies and stocks. However, they have no central administration. Cryptocurrencies are more volatile as compared to traditional stocks. All those specific features affect cryptocurrency fundamental analysis and make it unique.

The main aspect of cryptocurrency fundamental analysis

The value of traditional currencies may be predicted by using such aspects as inflation, interest rate, economic growth etc. Those tools cannot be applied to cryptocurrencies. This makes traders and investors to look for other aspects that may influence price fluctuations. Now I am going to give you some tools that may be useful when applying fundamental analysis to cryptos.

Demand

This aspect allows investors to understand whether this or that coin will be interesting for traders and investors in the future. Those cryptos that may be useful for the community in future, will be in demand without any doubts.

Another important factor is total supply and mining features. This allows market players to understand how many users will get the coin in future. The number of existing and planned to emission coins is also important. For example, most cryptos have limited emission meaning once they reached some amount, their emission (staking, mining) will stop. Unlimited emission may decrease interest to any coin. However, there are some other factors that you need to consider when applying fundamental analysis to cryptocurrencies.

Current situation on the market

Cryptocurrency’s position on the market is crucial when you try to examine its perspectives. Those coins, which have billion dollars capitalization are looking more promising than those with a lower cap. The logic here is that those “hard cap” have already their trust within the community.

It is important to understand the number of traders and investors making trading volumes as this will allow understanding whether the coin is used as a short-term speculative financial instrument or it looks promising in long term.

There is nothing bad in speculations as short-term traders contribute in liquidity as well. However, they may disappear one-day leaving investors one on one with their coin. The more people are involved in this or that coin, the more this coin is in demand.

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Cryptocurrency’s position in the traditional market

This factor indicates the demand for cryptocurrency beyond the community and its perspectives. Here you need to pay attention to the attitude of governments towards cryptos. China bans all ICOs and cryptocurrencies, for example. This is a negative aspect as Beijing was a long time one of the centers of the community.

Cryptocurrencies are adopted in many countries including Switzerland, Japan, South Korea, thebUS and others. However, they are treated differently there. In the US, e.g., cryptos are called digital assets.

Information about developers

This aspect influences the cryptocurrency as well. However, it allows also to understand how promising this or that coin is. When a team of developers comprises famous experts in this industry, coin’s price is likely to grow. And vice versa, if developers pay less attention to their project, the price of cryptocurrency is likely to decline.

Community attitude analysis

This method comprises the attitude of users and their activity. Every coin has its local community, which consists of holders, interested persons, developers and the others. Positive relations between the members of the community will have a positive impact on the price of a coin. However, if there are many negative comments the inflow of new adepts will be limited. This will lead to the price fall.

Those are not all the aspect that may be useful when analyzing the coins. There are many others that you may take and adopt your own strategy. Fundamental analysis has no strict rules on the number of tools and information sources that you can use.

Pros and cons of fundamental analysis

This forecasting method has its advantages. I use it from time to time in order to understand the general situation on the crypto market. The most important advantage of this forecasting method is that it allows me to find the general tendency.

However, I can give you several points that prevent many traders and investors from using this prediction method. Here they are:

  1. A large number of aspects to pay attention to. When you use technical analysis, for example, you have your own strategy, that comprises several tools. However, their number is limited by the rules of your trading system. Let’s say you use candlestick analysis. You need to find a level of a possible reverse, for example (or a trend line) and then you need to find a signal according to candlestick analysis. That’s all. Those who use fundamental analysis, have to be aware of everything that happens in the crypto world in order to understand the current situation. Moreover, they have to read tons of information that may also be useless.

  2. The causality may be broken. I want to underline here that the same news may lead to different results. This depends on the situation and many other factors. Crypto market seems to be adopted to bad news from China and I don’t think it will react the same way to the negative news from Beijing as it did earlier.

  3. Misinterpretation of any situation. When you deal with fundamental analysis, you risk misinterpreting every situation. You think, for example, that this or that event will increase crypto’s price, but the price stands still or even decline. Fundamental analysis in cryptocurrency industry is even more subjective than technical one.

  4. Finally, this forecasting method is very difficult to conduct. You need not only to know how to gather information but also understand how to use it. Beginner traders and investors are better avoid this forecasting method as they need to understand the factors that may influence the price first.

Is it worth to use fundamental analysis when trading cryptocurrencies?

I have underlined some weak points of this forecasting method. However, this is not the reason to reject using fundamental analysis in your trading routine. This analysis type has many adepts all across the planet and those who use it, have positive results in most cases.

Fundamental analysis allows traders and investors to find interesting cryptocurrencies that are undervalued currently but may be in demand in future. Those coins may have great technical potential.

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Top 10 Blockchain ETFs to Buy in 2019

  • Alex Morris

    Are top Blockchain ETFs simply tech stocks in expensive clothes? Find out whether you should invest in Blockchain ETFs if you are hesitant to buy Bitcoin

Top 10 Blockchain ETFs to Buy in 2019
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Why should investors buy top Blockchain ETFs?

Blockchain has become one of the major buzzwords in the tech space over the recent years, and it comes as no surprise that many want to capitalize on the revolutionary technology. That prompted the appearance of Blockchain ETFs where old meets new.

ETFs can be bought and sold in the form of stocks. While cryptocurrencies are generally deemed to be extremely risky, Blockchain ETFs that are comprised of the most established stocks on the market are considered to be a much safer choice. U.Today has come up with the list of top 10 Blockchain-oriented ETFs to invest in 2019.    

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BLCN

BLCN invests in stocks of the companies that are dealing with Blockchain. The ETF has more than 60 stocks. The advisory board of BLCN consists of crypto influencers who decide what stocks they should invest in.

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Despite a bumpy start, Eric Ervin, the CEO of BLCN, is not deterred by disappointing numbers, taking a long view into the future. He believes that the technology is still too nascent, and we are dealing with a long-term investment.

BCNA

Reality Shares has yet another Blockchain ETF, and its focus is placed on China, the second largest stock market in the world. Ervin claims that China is betting big on the DLT technology — it has almost three times the amount of patents the US has. Not surprisingly, Alibaba is their main holding, but the fund also has exposure to China’s A-Shares — before they invest in a particular stock, they assess the number of Blockchain-related patents as well as the degree of innovativeness. Eventually, they only select the companies with the highest score.

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BLOK

Amplify’s ETF was launched simultaneously with Reality Shares in mid-January of 2018. BLOK also intentionally excludes the words ‘Bitcoin’ and ‘Blockchain’ from its full name. Prior to that, the SEC issued a warning after a lot of stocks shoehorned these trendy words despite not dealing with crypto at all (case in point: Riot Blockchain (RIOT), which immediately saw its stocks skyrocketing).    

BLOK owns the stocks of IBM, NASDAQ, Overstock and other behemoths that are keen on the Blockchain technology.     

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Notably, there is one key difference between BLOK and BLCN — Amplify is an actively managed ETF.

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BKC

Back in May, BKC joined the crowded Blockchain ETF space. Brian Kelly, a Bitcoin permabull and a constant CNBC contributor, spearheads the fund. The holdings with the highest weighting in the fund include Overstock.com, GMO Internet and Global Unichip. Kelly states that BKC is a top-of-the-mind option for those who would like to invest in cryptocurrencies without dealing with enormous price swings and security issues. Overall, BKC holds the stocks of 32 companies.

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KOIN

The fund utilizes artificial intelligence in order to discover new Blockchain stocks. It specifically targets stocks with related keywords.   

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Since the list of KOIN’s holdings includes many big-name companies in the likes of Microsoft and Visa, it is definitely a safe bet for investors, but the predominance of conventional stocks makes it hard to make sizeable gains. Investing in companies with low market capitalization is considered to be a huge risk for such funds.

LEGR

First Trust Indxx has three groups of Blockchain stocks:

  1. Stocks of companies that have already come up with their own Blockchain-related products (for instance, IBM).   

  2. Those companies that are already utilizing the Blockchain technology, but they use technology that has been developed by other companies.

  3. The last group of stocks is attributed to those companies that are only dipping their toes in Blockchain.

Such a diverse approach to investment is considered to be one of the main advantages of LEGR. However, the fact that the fund rebalances its holdings to other stocks only twice a year makes it less attractive than other options.

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LDGR

A Blockchain ETF is supposed to be more than tech stocks in expensive clothes. LDGR actually offers to invest in companies that have a proven record of investing in Blockchain-related stocks. Just like in the case with KOIN, it cherry-picks the companies with the help of AI.

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According to the company’s CEO Lewis Bateman, they are exclusively focusing on investing in stocks of those companies that already have Blockchain-related patents. Mastercard Inc. and Royal Bank are among their top holdings. It hasn’t been an easy run for LDGR, but the same can be attributed to practically any other ETF that was launched after January. However, Bateman claims that this LDGR stands out among the rest of earlier launched funds because of its robust buildout.    

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LINK

LINK is the first entry on our list that actually features the word ‘Blockchain’. In its portfolio, this actively managed fund features stocks of 31 global companies that are dealing with the nascent technology. Raj Lala, the CEO of Evolve ETFs, is a firm believer in the disruptive potential of the DLT, and the fund is an opportunity to capitalize on that.         

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Things didn’t go particularly smooth for this fund since its stocks have shed more than 20 percent of their value since LINK’s inception in May. Hut 8 Mining Corp is at the top of its holdings list with a 10.8 percent share.

HBLK

Harvest Portfolios was responsible for launching the country’s first Bitcoin ETF, HBLK, which focuses both on large-scale and small-scale Blockchain businesses. Notably, this became the very first Canadian ETF that got the green light from regulators. Back in February, the Ontario Securities Commission approved the ETF.     

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The main purpose of this ETF is to become an entry point for investors who are seeking access to the burgeoning tech sector. Subsequently, they buy the stocks of already established companies.   

BKCH

In June 2018, the Horizons fund was listed on the Toronto Stock Exchange (yet another Canadian Blockchain ETF on our list). In 2018, Blockchain ETFs became the salient feature of the country’s biggest stock exchange.  

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The fund’s chief executive officer Steve Hawkins claims that he is not sure how big the adoption of the Blockchain technology is going to be, but the investments are necessary for building out the technology. BKCH, according to Hawkins, is focusing on well-established companies (the holdings of this ETF include the stocks of Nvidia Corp. and Digital Realty Trust Inc.).

What differs Blockchain ETFs from Bitcoin ETFs?

Since there is a lot of confusion, it is worth pointing out that no aforementioned Blockchain stocks are dealing directly with cryptocurrencies. The Winklevoss brothers were on track to launch their own Bitcoin ETF, but they didn’t get the approval from the SEC. Bitcoin ETFs are seen as a catalyst for the next bull market, but SEC commissioner Hester Peirce (better known as ‘Crypto mom’), claims that it could take years for the much-anticipated approval.  

Hopefully, this article helped you pick up the best Blockchain ETF! Stay tuned with U.Today!   

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