In the world of cryptocurrencies where the market is driven by emotions. How do we evaluate coins before we invest?
We see the hype of the ICO in 2017, where many are investing in new coins coming out, assuming that Bitcoin's value will rise. But most of them are worthless, and the rest are scam coins. Similar to Bitconnect and Titanium bar. So how can we avoid such mistakes? And don't send in our emotions. Here we find the Fundamental analysis. What is fundamental analysis? This is the way to evaluate not only the security and intrinsic value of an item, which includes economic, financial and other factors affecting it.
But to Benjamin Graham, also known as the father of value investing. The intrinsic value of a security can be found in the financial statements of a company such as assets, earnings, and dividend payouts. And if you know these things, you can predict the future price movement of a market.
Fundamental Analysis in the world of Crypto
In traditional financial assets, such as stocks, index funds, ETFs. The use of fundamental analysis is based on the evalutation of the financial health of a company. You need to review the financial statements. But unlike the world of cryptocurrencies, most cryptocurrency projects have no earnings, revenues, profits and other traditional metrics. So the fundamental analysis method is different here in the crypto world. It requires in-depth researh. But where do we get reliable information?
Source of information
Website
Maybe all cryptocurrencies have their website, here's the white paper and other offers.
White paper
We know information overload when we read it, but this is a MUST read! If you are a serious investor you will not hesitate to read the white paper. Here are the objectives of a project, use cases, how long the project and any other essential aspects are.
Community channel
All Cryptocurrency projects have a community or social media like telegram.
Must watch this. Big thanks for sharing your work @MarcDeMesel , additional source of information.
Press
Here are the reviews, because the developers of a project won't even say they have no money. There are a lot of great journalists today about blockchain and cryptocurrencies, but keep in mind the source of information, if you are not based on just one source, you need a lot of source of information. There are other paid reviews to call.
Steps of fundamental analysis
Before all that, I just want to let you know that every information you read here is based on my research on various experienced traders and investors here in the crypto world. And the various forums and articles - which I think are beneficial to those who want to invest in crytocurrencies. We have different opinions on investing so do your own research, use this as a guide.
1. Market Capitalization
When it comes to the total value of a coin in the market, most investors look at it first. To find out how much the profitability of a coin can grow. We can obtain the market capitalization of a cryptocurrency by multiplying the current price of a coin by circulating its supply. In other words, let's say a coin has 1 million circulating supplies and costs 2 dollars each. We need to quantify the circulating supply at the current price of a coin, and we can get 2 million market capitalization. If we go to CoinMarketCap, we will see different types of coins and their market capitalization.
Other cryptocurrency investors say "the lower the market capitalization of a cryptocurrency, the higher the potential growth."
2. Coin Supply
The smaller the supply of a coin the higher the chance to increase its price especially as demand increases. It is a simple law for supply and demand: low supply and high demand increase price. Bitcoin is one of the low-supply coins limited only for 21 million. So far about 85 Percents have been distributed. And the time will come when the supply of Bitcoin will run out, leading to higher demand and market prices.
3. Trade Volume
This is one of the most important indicators used by traders and investors.
This means that when a coin is high, demand is high, many buy and sell cryptocurrency exchanges during a certain period of time. We can find it on CoinMarketCap .
4. Use Case
One of the things we need to look at as an investor is the use case of a project. There are many coins in the market that have no value and use case, so we need to ask ourselves if a project has a future value in the market place.
5. Founders and Developers
Before we invest in a project, we first need to find out who the people are. Whether they already have experience in this field, background, and successful projects if any. Most of the time, we see them on their websites. But if a project does n't have the face or information of their founders and developers, Avoid them! There are many scammers on the internet, and we cannot justify that so they are hiding their identity is for security reasons. We don't accept cheap reasoning. usually they have interviews about the project and conferences, where we also get ideas, we just have to do some research.
6. Roadmap
We'll find out if a project has really been considered for a long time by looking at its road map. Much better detail. There are many cryptocurrencies that do not have a clear roadmap, and such projects have no purpose. We need to see them working product, and not just marketing.
Conclusion:
So far, so many crytocurrencies have come out, and not all of them are worth it to invest. We need to be careful and careful where we put our hard earned money. It's easy, we just have to be sophisticated when it comes to investing. Not because you have a friend who invests in a coin, you invest in it too. Always apply fundamental analysis and do your own research before investing. This will be your guide to making the right investment decision higher. The resources and information we need are easy to find, we just need to set aside some time.
