Fundamental analysis is a critical evaluation method for making informed crypto price predictions, especially for the long term. It offers a qualitative look into a cryptocurrency’s network and real-world application, and many factors must be considered for the analysis to be thorough.
In this article, we’ll cover 10 of the most important ones and how they affect crypto prices. Without further ado, let’s dive in.
Top 10 Metrics To Consider During Fundamental Analysis
Fundamental analysis is based on the belief that the price of a cryptocurrency is a reflection of its actual, intrinsic value. And even though it takes time, a DeFi asset’s price will eventually be tied directly to how useful it is and how feasible its applications are.
Most people tend to pitch a fundamental analysis vs. technical analysis comparison. But you should understand that while fundamental analysis employs a qualitative approach to crypto evaluation, it also considers specific numerical metrics. That’s why this list includes factors like transaction count and total value locked.
That said, the following are the top 10 metrics to check when conducting a thorough fundamental analysis for crypto price prediction:
- Market Cap
- Tokenomics
- Whitepaper
- Rate of Network Growth
- Total Value Locked
- Roadmap
- Community Size and Engagement
- Use Case
- Transaction Count
- Price-to-mining-breakeven ratio
1. Market Cap
Market cap is short form for market capitalization, and in crypto, it refers to the total USD equivalent of all the coins or units of that cryptocurrency that have been mined. It is calculated by multiplying the units of the token that the individual price of each token has mined. For instance, at the time of writing, Ethereum (ETH) has over 120,138,874 units in circulation. This is the total number of coins that have been mined so far. Its current price is $3,416, meaning its market cap is about $410.5 billion.
Generally, the higher a cryptocurrency’s market cap, the more stable it likely will be. Regardless, even significant cryptocurrencies experience volatility, but not as much as those whose circulating supply is limited to the extent that substantial trading activity can affect its price drastically.
2. Tokenomics
One of the most important metrics to consider when conducting crypto fundamental analysis is tokenomics. The tokenomics of a cryptocurrency is a guide map to how the total supply of that coin will be distributed.
It contains details like how much of the token will be available for staking, how much will be allocated to early investors, for funding community projects, and, of course, the devs’ and founders’ share.
Blockchains that offer too many tokens to early investors and even founders are often a birthing ground for pump-and-dump projects. You should be wary of cryptocurrencies whose tokenomics have no defined or tangible utility.
Furthermore, although blockchain tokens like Ethereum have unlimited supply, you should be careful when investing or trading with tokens like that unless they have actual blockchain utility and a track record of relatively stable prices. Finally, steer clear of cryptocurrencies whose actual token allocation is entirely different from what was on its whitepaper.
3. Whitepaper
The whitepaper of a cryptocurrency is an important document that tells you everything you need to know about a blockchain project from the founders’ point of view. It outlines the use cases of the token, its developmental roadmap, tokenomics, and other helpful information.
A whitepaper aims to foster trust and promote transparency so investors and people interested in using the token can adopt the blockchain project. So, when performing fundamental analysis, we highly recommend you thoroughly check all the details it provides and whether it matches real-world information currently available.
One detail you can scrutinize, for instance, is the team and advisors. If most of the developmental team has worked on successful blockchain projects in the past, there’s a significant possibility that the current project will also be a success. This is good news for long-term investors.
4. Rate of Network Growth
The rate of network growth refers to how quickly the size of users on a blockchain project is growing. When a cryptocurrency experiences a steady exponential increase in users, there is a high possibility that it offers a utility that attracts people.
However, you should be careful with this metric, as even Ponzi schemes attract massive numbers. Regardless, any blockchain with a healthy network growth rate is a potential goldmine you should consider adding to your portfolio.
5. Total Value Locked
Total value locked (TVL) refers to the cumulative amount of DeFi assets locked or staked on a blockchain or DeFi platform. The higher the TVL a blockchain project has, the more successful or trustworthy it is, making it a good spot for investment.
However, TVL values aren’t as transparent as they appear to be. When measuring TVL during fundamental analysis, you must consider factors such as the diversity of the staked assets. For instance, if 90% of a blockchain’s TVL is in Bitcoin (BTC), that’s a red flag. Furthermore, if user activity is low, TVL numbers could be bait for a pump-and-dump scheme.
6. Roadmap
Another essential metric we highly recommend you consider during fundamental analysis is the project’s roadmap. The typical project roadmap states its objectives and goals and the timeline for completion for each of these goals.
It’s important to check how feasible these goals are and the structures the project has in place to reach them. You should also check the timeline for completing these goals, as they can give you a heads-up on when to make strategic trading decisions.
7. Community Size and Engagement
The size of a blockchain project’s community matters. Typically, the more users a project has, the more valuable it is. Still, a large community that’s not active is a red flag. You should watch out for blockchain projects with an active user base with genuine things to say about the project.
This is because some malicious projects often pay people to make noise about their projects and then rug as soon as they garner a decent level of engagement.
8. Use Case
We’ve discussed use cases in this article, but what exactly do we mean? The use case of a cryptocurrency refers to its utility on and beyond its blockchain. That is, what can the coin or token be used for?
The best cryptocurrencies to invest in are those that have broad utility. How widely accepted is the token as a payment option? Is it a coin or a token? That is, does it reside on its blockchain network? These are the questions you should be asking.
9. Transaction Count
Transaction count is another quantitative measure you have to evaluate during fundamental analysis. With trading data, you can determine how frequently the token is traded and how much volume moves. Typically, the higher the transaction count of a cryptocurrency, the more valuable it is.
And this metric is excellent when making fundamental analysis for day trading.
10. Price-to-mining cost breakeven ratio
The price-to-mining cost breakeven ratio isn’t a prevalent metric for fundamental analysis. This applies only to cryptocurrencies that can be mined, not pre-mined tokens or coins. So, aside from significant DeFi assets like Bitcoin and Ethereum, there aren’t a lot of other assets to evaluate this metric with.
It compares the price of a cryptocurrency with how much it costs to mine it. Typically, ratios less than 1.2 are bullish, and those above 3.2 are bearish.
Conclusion
This article covers the top 10 metrics to consider when making fundamental analysis for crypto price prediction. Each of them can significantly determine the value and price movements of cryptocurrencies. Examined well, you can combine them with technical price data to make informed trading decisions.
FAQ
What factors should be considered in fundamental analysis?
In crypto fundamental analysis, consider project team, community and engagement, use case, roadmap, regulatory environment, total value locked, whitepaper, and tokenomics to assess a cryptocurrency project’s long-term viability and potential.
Which indicator is best for fundamental analysis?
Sadly, there isn’t a single “best” indicator for fundamental analysis in crypto. Instead, you should take note of a combination of factors such as market cap, use case, rate of network growth, project team and investors, community support, and tokenomics to see how much intrinsic value a blockchain project has.
What are the techniques of fundamental analysis?
There’s no predefined technique for approaching fundamental analysis in crypto. However, if you diligently assess all the metrics we’ve mentioned in this article, you should be well informed to make an investing decision.
