Fundamental analysis of cryptocurrency: advantages and disadvantages

Fundamental cryptocurrency analysis: advantages and disadvantages

Fundamental analysis has been used in financial markets for more than a century and applies to most well-known assets. Cryptocurrencies at the dawn of appearance did not yield to it, but over time, investors adapted it to cryptographic markets, creating a fundamental analysis of cryptocurrency. Now the right approach in this direction ensures success, although it seems to be quite difficult for beginners. We will discuss principles of fundamental analysis, its difficulties and advantages on the crypto market at the present stage of development in this article.

What is cryptocurrency fundamental analysis?

Fundamental cryptocurrency analysis is the prediction of their value in the long term, based on the elaboration of all the information about them from economic to technical.

It requires an in-depth study of the facts, including those that affect the value of a currency not immediately, but over a long period of time — a week, a month, or several months.

Therefore, fundamental analysis is not applicable in the short term and is used when an investor wants to get an idea of the value of a certain currency in the distant future – at least after a few months or even after a year.

However, attempts at more long-term predicting are also meaningless, since cryptomarket quickly change and often new unaccounted, but significant factors, appear that can dramatically expand any fundamental prediction.

The methods of fundamental analysis were first used in the American traditional market, and its founders are considered to be two American financiers – Benjamin Graham and David Dodd, who in 1934 published a work entitled “Analysis of Securities”.

These are also relevant for cryptoactive assets, therefore, as soon as cryptocurrencies began to form the market, the “fundamentalists” did not slow down to appear on it. However, it quickly became clear that the features of the crypto market play a significant role and do not allow fans of fundamental analysis to operate their usual tools on it with the same confidence as usual.

Among other things, cryptocurrencies have qualities that are not similar to ordinary assets (for example, they have properties and currencies and stocks), are distinguished by a lack of centralization (not always, but often), market “behavior” (characterized by at least high volatility), methods of integration into society and to the markets and much more.

Components of cryptocurrency fundamental analysis

Fundamental value prediction, for example, of traditional currencies consists of analyzing the level of inflation, the level of interest rates of currency in a bank, the solvency of a country, and so on.

The components of the analysis of traditional currencies are not applicable to cryptocurrencies, which forces analysts to build fundamental predictions on other data that can be divided into several groups

This is not all indicators that are used in fundamental analysis. The complete list is different in each case and the task of the analyst is to collect a maximum of facts about a particular cryptocurrency.

Should I use the fundamental analysis of cryptocurrency on the crypto currency market?

Is the above mentioned reason to refuse it? Of course not. Fundamental analysis has millions of fans all over the world, and those who have noticeably immersed themselves in theory and practice often have good material results.

Fundamental cryptocurrency analysis allows you to find really valuable from the point of view of long-term investment in the still undervalued cryptocurrency.

These are coins that have technical potential, are convenient and promising, but are unknown to the crypto community. Whether they did not have enough advertising, or in their past, dubious things happened – the result can only be assessed by detailed, in-depth and thoughtful research, and this is the prerogative of fundamental analysis.

Fundamental analysis is the best way to get a general idea of the cryptocurrency market and begin to quickly focus on it. Nothing else, just like a thoughtful study of currencies, does not allow us to quickly understand what is really important on the crypto market, and that in a few months it will sink into oblivion because of its uselessness.

Fundamental analysis teaches the investor to distinguish reliable currencies from fraudulent ones, to determine where the “bubble” is based on nothing, where the financial pyramid is, and where the real cryptocurrency has all the positive features that contribute to the growing popularity of this type of money in the world.

Fundamental cryptocurrency analysis is practically the only tool that has long and reliably proven to create long-term forecasts. Despite some uncertainty, complexity and discrepancies in the interpretation of facts, the accuracy of fundamental forecasts remains high.

It is difficult to miss the most important, significant facts in the analysis, many of the information necessary for fundamental research are permanently available (from economic indicators to indicators of community activity), therefore the main body of information is always at the disposal of the analyst.

Of course, if we manage only them, the accuracy of the forecasts will not always be what I would like to see, but in general there are not so many external factors on the crypto market that can significantly distort a good fundamental forecast.

Therefore, in general, it is not surprising that the practice of applying fundamental analysis on a crypto-market spreads more and more, despite the errors that, strictly speaking, are characteristic of any prediction.