For traditional investments in stocks or real estate, fundamental analysis entails evaluating the financial health and viability of a company according to its 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 to analyze. Why? Because:
The crypto space is in its infancy stages, and almost all of the cryptocurrencies are in development stages. Which means that there are limited uses cases in the real world currently and therefore, a lack of track record to show for.
Factors that Affects Crypto Value
Utility
Scarcity
Scarcity refers to the finite nature of the coins. In economics, a fixed supply of a certain item would increase its value in the long term, assuming its demand increases. This creates scarcity, as there is only a limited supply of coins in circulation. For instance, Bitcoin’s maximum supply is fixed at 21 million coins. Especially for coins that have a great utility, demand will undeniably push its value up.
Perceived Value
A coin is only as valuable as what the markets deem it to be, and how a project is valued depends on factors that are core to the development of the project. Therefore, projects that persistently achieve their milestones that were set out in their white paper. Additionally, collaborations and partnerships with credible companies or other projects is a good sign of expansion. Other news that can enhance the perceived value in the eyes of the market includes a successful launch of their Minimum Viable Product (MVP) or the beta version of their protocol/software. These are positive indicators of good progress by the project and will enhance the value of their coin.
These are key elements of a coin that will affect its value and is vital for everyone wanting to invest in cryptocurrencies to understand. Here are a few more guides that could come in handy in the cryptocurrency world: