If you’re new to digital currencies, you could be struggling to navigate the waters. It can be daunting with all of the technical concepts, computing jargon, and new key phrases that have never been used before.
To help you get started, we have created a crypto fundamental analysis guide for beginners.
The Importance of Performing Your Own Analysis
When investing in the stock market, it’s critical to analyze the financial health of a company based on its financial statements. Along with the company’s history, you can make a somewhat educated determination of its value and whether it’s worth an investment.
The same goes for digital assets. If you want to make an investment, you should perform some sort of analysis to see if it’s worth your money. Except digital assets are very different to corporations.
There are no financial statements available to help you, and nothing more than a very volatile history to look back on for insight. That’s because there’s no profit to determine value. It’s all based on participation in the community. And, because digital assets are relatively new, there are a limited number of use cases and no track record of performance. You have to perform a fundamental analysis using a different methodology.
So, how exactly do you determine whether a digital asset is worth your time and money?
Find Reliable Sources
Digital assets are new and far from easy to understand. However, having a good understanding of the fundamentals of a digital asset will help you to form your own opinions so you can take a stand where you feel comfortable.
Gather all of the knowledge you can by reading articles written by experts and even by learning what other people think or do. Other people’s experiences with a certain digital asset will help you understand more about how it works.
Check platforms like CoinMarketCap for current value and past performance. This is key to understanding how the digital asset performs. You may notice trends, but digital assets are still volatile and unpredictable, so you can’t always gauge future growth on past performance.
Evaluate the Digital Asset
There are several characteristics to keep in mind when deciding to invest in a digital asset. These characteristics will help you determine the viability of the asset and its potential future value to see if it’s worth it for you.
Technology
Technology is the foundation of the asset. Without good technology, the asset will likely fail. Study the coin to learn about the technology that backs it. The most potential you will find is in assets with technology that offers something innovative or helps people solve significant issues.
Coin Usage
The more transactions an asset has, the better it will rank, so find out how often the asset is used for the initial purpose instead of how much is used for speculations. The most popular assets have hundreds of thousands of daily transactions. This information isn’t always easy to find, but it’s worth spending the time to look for it.
Minimum Viable Product
You want to make sure that the asset you choose has a minimum viable product. Does the platform exist yet? If not, you don’t want to waste your time. Make sure that the asset is backed by a platform that exists, even in a development state.
Team and Advisors
Check the professional backgrounds of the team members or advisors on the board of the asset’s project. Make sure other projects they’ve been a part of were successful, especially if they were focused on digital assets. Find out why they left previous projects or why they decided to join this one.
Roadmap
If the roadmap for the digital asset isn’t posted online anywhere, walk away. There should always be a road map on the website or in a whitepaper. Once you find it, verify that the team actually follows the plan and implements the features they promise according to a set schedule.
Price
If the price is low, that could be an indicator that it will grow. If a coin is only worth a few USD, the potential for growth is much more than if it’s worth thousands of dollars. These are good investments because they don’t cost you a lot of money upfront, but they’re also always a risk.
Trading Volume
You can estimate whether a digital asset will increase in volume based on whether the volume of daily trading increases along with the price. It could also be a good indicator that it will perform well.
Social Activity
Check social media and forums to see if people are talking about the digital asset. If there are a lot of users openly discussing it and the developers are responsive to comments and requests, that’s a good sign.
Also, check the number of visits to the asset’s website. If the number of visitors to the site grows daily, that’s another good measure of success.
Valuing digital currencies and tokens is not an easy feat but by ticking the boxes listed in this guide, you will be in a good position to make educated investment decisions.
Related Articles:
- How to Use the NVT Ratio to Evaluate Bitcoin
- What is the Bitcoin Misery Index And How Can Traders Use it?
- How to Respond to a Bitcoin Crash as an Investor
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