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Fundamental Analysis Meaning

Aug 14, 2023 | Updated Aug 14, 2023
Fundamental analysis is a technique traders use to establish the underlying fundamental factors that affect an asset’s intrinsic value.

What is Fundamental Analysis?

Fundamental analysis (FA) is an approach investors use to determine the value of an asset. They examine both internal and external economic and financial factors to ascertain whether or not the asset is correctly valued. The goal of FA is to understand an asset’s actual worth based on key traits and characteristics not reflected in its market price. FA also helps investors evade potential rug pulls, scams, or fraud.

FA is traditionally associated with analyzing stocks, commodities, and bonds in financial markets, but it is applicable to nearly all asset classes, including cryptocurrency. In the crypto context, fundamental analysis involves analyzing the key factors driving the digital asset’s value.

How Does Crypto Fundamental Analysis Work?

Crypto fundamental analysis involves analyzing the key factors that affect a cryptocurrency’s value. Some factors to consider when evaluating FA for a crypto project or asset include:

  • Competitive advantage: How does the asset fare against its competitors, and is it in a position to surpass the competition?  Its uniqueness, user experience, adoption, and real-world use cases help determine if it has a competitive edge against other market players.
  • Business model: A project with a well-defined business model that entails a clear vision for generating revenue and a plan to utilize the revenue in achieving its goals will likely attract long-term traders and investors. A sustainable business model that is likely to generate revenue will raise a cryptocurrency’s fundamental value.
  • Narrative and marketability: A digital asset’s marketability and narrative affect its market value and drive adoption. A strong marketing team and a compelling story behind a project, as well as how it promotes itself to potential investors, can determine its success in the long term. 
  • Community support: The community behind a crypto project can help increase awareness and drive adoption, which contributes to its value appreciation.
  • Tokenomics and token dynamics: A project with clear tokenomics that encourages users to hold and utilize its token can help maintain its market value over a long period.
  • On-chain metrics: It is worth considering a project’s transaction count, transaction value, active addresses, fees paid, hash rate, and staking amount. These data points measure the network activity, health, interest level, and demand.

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