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Article Overview: This article explores the importance of performing fundamental analysis for cryptocurrencies and how you can engage in your own fundamental due diligence before investing.
Navigating the world of cryptos can be very daunting due to vast usage of computing jargon and technical concepts that will almost certainly confuse you.
Add to that the relative infancy of the technology, it can be hard finding structured resources to assist you in your journey.
Here at Master The Crypto, we’ve taken the liberty to create a comprehensive free guide to investing in cryptocurrencies!
Learn How to Make Over 100% Returns Investing in Crypto
Importance of Performing Your Own Analysis
For traditional investments such as stocks, fundamental analysis entails evaluating the financial health and viability of a company according to it's financial statements.
If the numbers look good, we can be confident that the company has good fundamentals and we can, therefore, invest in it.
Performing fundamental analysis for cryptocurrencies, however, is radically different since there are no financial statements.
1. Cryptocurrencies are not corporations, but rather representations of value or assets within a network. Its viability is not based on generating a revenue, but rather directly depends on the participation of the community (users, miners, and developers).
Each cryptocurrency is a manifestation of the different applications of Blockchain technology, and are usually decentralized and open-source;
2. The cryptocurrency space is in its infancy stages, and almost all of the cryptocurrencies are in development stages. This means that there are limited uses cases in the real world currently and therefore, a lack of track record to show for.
Thus, fundamental analysis of cryptocurrencies must be performed with a different methodology. Given the complex nature of cryptos and their underlying technology, it is even more important for us to engage in research to assess the viability and potential of the coins.
This ensures that we make better investment decisions and are kept in the loop of things, especially with so many cryptocurrency scams in existence.
But more importantly, a good understanding of a coin’s fundamentals allows you to form your own opinions and have your own stand, which is rare in the crypto world due to its complexity.
However, do not worry if it all seems too complicated! We’ve created a comprehensive and easy-to-understand guide to help you. Let’s begin!
Step 1: Finding The Right Sources of Information
Knowledge is power. In order to assess a coin, we have to first know where to get the key sources of information from. Here is where you should get the information from
Coin’s White Paper
A detailed proposal by the development team which outlines the purpose and mechanics of the coin. This represents the main source of evaluating the fundamentals of the coin.
You should always read the coin’s white paper before investing. The drawback is that it can get very technical given the use of technical jargon and concepts that are hard for an average Joe to comprehend.
(See also: Crypto ICO vs. Stock IPO: What’s the Difference?)
Coin’s Slack Channel or Blog
This represents the official and main channel of communication of the core development team. Join their Slack channel, Telegram or Discord channels and view the interaction of the development team with the community.
Ask questions to get more information on the coin. You should also follow the updates given by the developers in their official blog, usually by way of Medium.
Community Forums: Reddit/Bitcointalk/Steemit
Forums are a great way to understand the coins better, as well as the sentiments surrounding the coin. You can find simple definitions of certain concepts or easy-to-understand analysis of coins from forums, as the community is well-informed.
The diversity of thoughts allows you to grasp the mechanics of the coin far better, especially if you’re not technically-inclined.
If you’re not familiar with the technical jargon, a good tip is searching for your query together with the term “ELI5”, which stands for “Explain it to me like I’m 5 years old”.
(See also: Coins, Tokens & Altcoins: What’s the Difference?)
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Step 2: Cryptocurrency Fundamental Analysis Checklist
The next step entails systematically asking questions on the Coin to assess whether it is a good investment. For your convenience, we’ve created a comprehensive checklist just for that.
Get my free Fundamental Analysis Checklist here
For you to access our free and comprehensive fundamental analysis checklist, all you have to do is to provide your email here and you’ll be well on your way to investing in the right cryptocurrencies!
(You might also be interested in Beginner's Guide to ICO Investing: How to Participate in ICOs.)
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I'm Aziz, a seasoned cryptocurrency trader who's really passionate about 2 things; #1) the awesome-revolutionary blockchain technology underlying crypto and #2) helping make bitcoin great ‘again'!