Performing Fundamental Analysis on Cryptocurrency
“Do Your Own Research” is a very common phrase in the world of investing. And especially if we talk about cryptocurrency, doing in-depth research before an investment is a must. In the year 2017–18, when Bitcoin was making headlines, we saw several altcoins entering the crypto space. Many of them winded up and left. An honorable mention is Bitconnect. If you do not know about Bitconnet, I would urge you to google it!
After the increase of shitcoins, the investors became more cautious. But, due to the decentralized nature of cryptocurrency, investors have no set rules to analyze the fundamentals of a coin. Cryptocase has prepared a framework for fundamental analysis of a coin, which could help investors better understand the coin.
Key Elements of Fundamental Analysis of Cryptocurrency
Remember, the news is just a part of fundamental analysis and not the fundamental analysis in itself. Many new investors consider the news as a complete fundamental analysis.
Websites for Research: Coinmarketcap, Coingecko
Organization Website
The first thing an investor must check is the company website. Also, the investor must use the official links of the website to prevent landing on duplicate or scam sites. Coinmarketcap and Coingecko provide legitimate links to the company website.
What Should an Investor Look for?
Professional Looking?
Firstly, the investor must check if the website looks professional. A legitimate organization will have experienced developers and enough resources to build a great website. A website is the face of the company, hence enough importance will be given to the content and looks of the website. As scam coin might have a very minimalistic looking website with very limited information.
Content and About the Project
A legitimate project website will have detailed content and information given on the website like about us, about the project, the problem they are trying to solve, the roadmap of the project, etc. Every authentic project will be dedicated to solving a real-world problem and its vision and mission will be made public.
No Spelling Errors
The easiest way to look for lousy work is to find a spelling error. An organization with enough funds and a dedicated team will never afford to make a spelling error. Spelling errors are a warning sign that either the team is unprofessional or they are planning to run away.
Coin Price Data
The investor must check the coin's market cap, its circulating supply, and total supply, current price, an all-time high, and an all-time low, and the price trend of the coin in the past.
All the price-related data tells you if the current prices are high or if it is a good time to buy the coin? The past trends of the coin can help in forecasting the returns it can give in the future.
If we recall, when Shiba Inu was listed on the Indian exchange WazirX, its price skyrocketed to $0.12281300. This means if someone sold the coin at this price, there was a buyer available to buy it too. If the buyer was fundamentally aware of the price of Shib, why would he/she buy it at such an exorbitant rate? The current price of Shib is $0.00000902. In short, someone bought the coin at a premium of 13615 times the market price. This is an absolute blunder. If you are aware of the current market price and other price data, you would not dare to buy the coin at such high rates.
Whitepaper
A whitepaper is an informational document for the investors to understand the technical specifications of a project, the problem they intend to solve, and how they are planning to solve it. It will contain a lot of technical terms which may go over your head :p. Many investors tend to skip this step, especially retail investors. I would highly recommend every one of you go through the whitepaper of a project before investing in it. Initially, you might understand only 10 to 15 % of the paper. Steadily you will start understanding more content in the whitepaper. It would help you to further research other projects in a better way.
Many organizations also publish a user-friendly lightpaper or a flyer so that investors can get a grasp of what the project is all about? A lightpaper is a smaller version of the whitepaper with visuals and graphics. A legitimate project solving a real-world problem will have a detailed whitepaper. On the other hand, projects started by founders wanting to make a quick buck will have a very ordinary whitepaper. Compare the lightpaper (not even whitepaper) of Polkadot with that of Epcoin, you will see the difference for yourselves.
Polkadot Lightpaper- https://polkadot.network/Polkadot-lightpaper.pdf
Epcoin Whitepaper- http://epowercoin.club/epcoin%20whiterpaper%201.0.pdf
About the Team
Who is who?
Any project is possible only by its team. It is the team members who work and make the project a success. Therefore, it is very important to study the team members of the project. The project website must tell about the team members, their backgrounds, and their area of expertise. An investor must check out the LinkedIn profiles and other social media profiles of the team members to get an idea of their capabilities. If the project is backed by some of the renowned names of the crypto domain who have proved their track record in the past, the project has a high probability of succeeding.
Just by looking at the team members, an investor gets a feeling about the potential of the project.
Do They Stick to Their Word?
The team often announces the roadmap of the project, it is very essential to keep a tab on the fact if the team can meet its deadlines or not.
How Active are They on Social Media?
A great team of a great project always interacts with its community members for suggestions and feedback. They will be regular on social media and their social media handles will not look dead.
Use Cases
One of the major points in the checklist of the investors should be the use cases of a project. If we talk about Ethereum, its immense popularity is backed by the no. of use cases of the project. If a project fails to have any real-world use case, what good is it then?
Physical Address
A legitimate organization will never shy away from sharing its office address publicly. Unless they are operating from a one-room apartment. What I would suggest you, is check out their physical location on Google Street View.
News
A proactive investor is always monitoring the news of its invested coins. You can join the telegram channels of your favorite coins or join their Reddit community. Following exchanges and known figures in the crypto world on Twitter can help you stay up to date in the crypto world.
The Verdict
Cryptocurrency investments are highly risky and volatile. It is always in the best interests of the investors to do as much detailed research as possible before investing in a project. The above is a list of elements that the investor should keep in mind before investing. I hope this will help you in making better investment decisions.
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Note- Cryptocase is not a financial advisor and the above is not financial advice. The information is solely for educational & informational purposes only. Cryptocase is and shall not be responsible for any profit or loss incurred by you
