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My Complete Guide to Cryptocurrency Fundamental Analysis

Fri, 07/27/2018 - 13:56
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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.


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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About the author

Andrew Strogoff is a skilled Forex trader and technical analyst from Limassol, Cyprus. He started cryptocurrency trading three years ago, and now is fond of blogging, swimming, cars, new technologies. Loyal blockchain adopter.