Crypto fundamental analysis part 3 – project analysis
Cryptocurrency projects aren’t like traditional companies, both in terms of how they operate and how they are analyzed. As people don’t have as much data to sift through as you would with traditional stock investments and not everything is straightforward as it is with the financial reports.
Since crypto is still a new industry, it is highly speculative. However, there are several factors to look out for when analyzing an investment that can help decide whether a cryptocurrency is potentially a good moneymaker or not:
- Target market
- Competitor comparison
- Demand, token economics, and utility
- Status and active users
- Community and reviews
- Price history and age
Every product has a market that they are trying to target. This means you should consider market size when trying to assess the fundamentals of a project. A broader market is, however, not always better. Large markets could already be over-saturated with possible solutions to the same problem. This would, in turn, decrease the likelihood of adoption. Niche markets are, on the other hand, small but could be highly receptive to a new solution to a problem.
Competition is extremely significant in any industry. It could be used to gauge the effectiveness of a cryptocurrency project. If we take a look at how many competitors a project has and how does it compare to the competition, we can conclude the possibility of the project succeeding in the market. Cross-checking with competitors can highlight both the strengths and weaknesses of a project. That can, in turn, suggest whether this project is likely to beat its competitors in the long-term.
Evaluating the level of competition and deciding whether a project is in good standing relative to the rest rather than just in absolute terms is essential. If a product is unique, it could mean that it is tapping into an unsaturated market or a non-existing one.
Successful products always have great teams behind them. Looking at the team and the advisory board can tell you a lot about the project and how it will be managed.
When examining the project team, check who they are, where they are from, what’s their work history, etc. If a team with a good experience behind them runs the project, that’s definitely a good sign.
Crypto projects often have roadmaps that signify how fast their development will be. They show what upcoming plans they have and how they will move the project forward. Roadmaps can show how long it will take until a project becomes tradable, which is extremely important.
However, watch out for roadmaps that are too ambitious. Missed deadlines bring negative hype around the projects, making it a lousy investment in no time.
When assessing cryptocurrency projects, partnerships are essential for assigning the value of the project. They are more important for determining the validity of the project than the possible outcome of the partnership. However, make sure to understand the details of the partnership before passing judgment, as not all partnerships are created equal.
Demand, token economics, and utility
Price and value are, as with any tradable asset, driven by supply and demand. Theoretically speaking, the larger the demand, the higher the price. In cryptocurrencies, the demand is controlled by token economics and utility.
Looking into the token economics, which is the economy based around the token, can tell us many things. The token should have a use-case within its ecosystem to create sufficient demand. However, its other factors should be investigated, as well. Token supply, emission, and distribution are some of the factors that should influence the decision of whether to invest in a project.
Not all cryptocurrency projects start on a level playing field. Newer projects have far less market traction while established credible projects with their names recognized by the community are much safer investments.
A high number of users that use the cryptocurrency in question is definitely contributing to its value.
Whitepapers outline the purpose of the project. They are technical documents that have every single detail about the project in them. It is advisable to read the whitepaper thoroughly before investing in any project.
Community and reviews
A community that stands behind a project is a crucial factor in the fundamental analysis of crypto projects. Reading real user reviews can tell you a lot about how the cryptocurrency stands in the market and what are its strengths and weaknesses.
Price history and age
There are thousands of cryptocurrencies currently on the market, and it is safe to say that most cryptocurrencies come and go. If a project has established its name for a long time and has consistently maintained value relative to other cryptocurrencies, it might potentially be a good investment. However, substantial returns may instead come from smaller, and relatively unknown cryptocurrencies that breakout and become mainstream rather than from already established projects.
How often is the cryptocurrency traded, and how easy it is to exchange it for other cryptocurrencies without experiencing slippage? If a particular cryptocurrency generates lots of interest, lots of trading will happen. This could potentially mean that a token is in high demand.
A project’s approach to regulation matters greatly in this day and age. If a project does not adhere to certain laws and regulations, that could have negative effects on the price in the future, even if one might not agree that cryptocurrencies should be regulated.
Fundamental analysis can be tricky when it comes to cryptocurrencies. There are many factors to consider and look at, and most of them are entirely subjective. However, with enough projects analyzed, you can compare results and see which projects stand out as viable investments.