Crypto fundamental analysis part 1 – Finding Sources
Navigating the world of cryptocurrencies can be very difficult for a beginner due to the vast usage of tech jargon, as well as concepts that will almost certainly confuse you. Add to that the relative infancy of the technology, it can be extremely difficult even to find structured resources to learn from.
Importance of doing analysis by yourself
For traditional investments such as stocks, fundamental analysis requires you to evaluate the financial health and viability of a certain company according to its financial statements. If the numbers look good, it can be said with confidence that the company has good fundamentals. However, performing fundamental analysis for cryptocurrencies is quite different in every regard. There are no financial statements to evaluate, and everything has to do with the importance of the technology as well as the acceptance of the general public.
Cryptocurrencies are not companies. They are rather representations of value or assets within a certain network. The viability of a certain cryptocurrency is not based on it generating revenue, but rather directly on the community participation as users, miners, and developers.
The cryptocurrency space is still a young industry, which means that almost all of the cryptocurrencies are in development stages rather than finished products. Due to this, most cryptocurrencies have limited uses cases in the real world. This makes it even harder to perform fundamental analysis.
Fundamental analysis of cryptocurrencies must be performed differently than what’s traditionally done with stocks or other asset classes. It’s more important to engage in research to assess the viability and potential of the coins rather than what they are doing at the moment. A good understanding of a cryptocurrency’s fundamentals allows you to form opinions and stances, which are quite a rare occurrence in the world of cryptocurrencies.
How to find the right information
As an old saying goes: Knowledge is power. To assess a coin, we have to know where to get the information from first. Obtaining information about a cryptocurrency can be done in a couple of different ways:
Reading the whitepaper;
Checking out the cryptocurrency’s channels and blogs;
Checking out the cryptocurrency’s forums.
1. Cryptocurrency’s whitepaper
A whitepaper represents a detailed idea proposed by the development team. It outlines the purpose and mechanics of the cryptocurrency itself. A whitepaper represents the main source of evaluating the fundamentals of the coin. When performing fundamental analysis, you should always read the cryptocurrency’s whitepaper.
One thing that many people find as a drawback is the sheer technicality of the whitepaper itself. You have to understand quite a few concepts, mostly regarding finance and cyber-security, to read through the whitepaper easier.
2. Cryptocurrency’s channels and blogs
Channels and blogs represent the official and main channels of communication between the core development team and the general public. To do the fundamental analysis, you should take time to join a cryptocurrency’s Slack, Telegram, or Discord channel and see what the topics are there. Also, this is the place to ask questions and get more info on the project.
These channels are places where you can track the code updates that affect how a cryptocurrency is developing.
3. Cryptocurrency’s Community Forums
Forums are a great way to understand the cryptocurrency projects as well as the audience that follows it. This way, you can see the sentiments surrounding the project even better. This is also a great place to find simplified definitions of certain concepts as the community is usually well-informed.
The diversity of thoughts and different perspectives are never a bad thing as well, as they allow you to grasp the mechanics of the coin far better. If you’re not familiar with the technical jargon, many cryptocurrency projects have their “ELI5” articles on the forums. These articles try to “Explain it to me like I’m five years old,” which helps people that are not so much into cyber-security and programming in general.
The usual forums to look at would be Reddit, Bitcointalk, and Steemit.
All of the information about cryptocurrency projects is available online, and so are the opinions of other people. However, one should take time and investigate each potential investment by themselves as putting money on the line based on other people’s opinions is not a good investment strategy.