Investors should consider extensive analysis before making any investment. No matter whether it is stocks, real estate or cryptocurrencies . There are situations in all areas in which a value is highly overvalued. Usually only the sellers benefit from these differences, which always makes extensive research of the project profitable.
In the case of stocks, the fundamental analysis is usually used first, which uses economic indicators to determine the current market price. This is based on company data and market analyzes, which are usually easy to access and view.
This is often more complicated with cryptocurrencies, since the value of a coin or token cannot necessarily be derived from the same information. However, there are also ways to evaluate a project based on its fundamental data.
What forms of analysis are there?
Fundamental analysis is one of the most important indicators of the value of an asset class. The more precisely the data collected is evaluated, the more precisely the analysis can be carried out. However, there are other important forms for evaluating cryptocurrencies besides it.
Fundamental analysis is a financial analysis tool that helps determine the fair and reasonable price of a security. In contrast to technical chart analysis , it is not based on mathematical indicators, but on business factors. This data is also known as fundamental data.
The most important key figures include the price-earnings ratio (P / E), the price-book ratio (KBV), the price-to-sales ratio (KUV) and the price-cash flow ratio (KCV). The return on equity and the equity ratio also play a crucial role in assessing the profitability of this company.
For cryptocurrencies, the market capitalization, the (current and maximum) circulation supply, as well as the historical price development are the most important factors for the evaluation. Likewise, the distribution / distribution of the currency to various wallets and shareholders can provide information about the company. In addition, the individual order books of the exchanges and the trading volume of the currency are a good feature with cryptocurrencies.
Chart analysis is a technical analysis that evaluates the course of the price using mathematical algorithms. Data from the past are used, which can give conclusions about the future course of the course. The technical chart analysis works regardless of the fundamental data or the current market situation.
The most important key figures are the buyer-seller ratio (RSI) and the moving average (MA). In addition, new indicators are constantly being added, which can function more precisely or less precisely depending on the market.
Many brokers, such as eToro brokers , offer their customers all the important tools for chart analysis free of charge.
Another approach to evaluating cryptocurrencies is sentiment analysis. It is based on psychological factors and depends, among other things, on surveys and customer reviews. The price development often depends on the emotions of the market participants, which means that the sentiment analysis can work better in certain situations than the fundamental analysis or the technical chart analysis.
This method of market analysis is becoming increasingly efficient, particularly through machine learning and artificial intelligence . The use of special software can process and evaluate enormous amounts of data. This also includes characteristics that people generally cannot (cannot) recognize.
Likewise, keyword analysis is largely part of sentiment analysis. Certain search terms, such as "Bitcoin", are evaluated in search engines and their relevance and current popularity derived.
How does fundamental analysis work with cryptocurrencies?
Fundamental analysis is basically possible with cryptocurrencies, but it differs in approach from other assets. While the economic key figures (capital flows, annual reports, balance sheet, etc.) of the company are decisive for shares, companies in the field of cryptocurrencies are not obliged to disclose this data.
Thus, other factors come into play with Bitcoin and cryptocurrencies, such as trust. The valuation is similar to that of regular currencies and therefore also depends on the overall economy.
After the market analysis, the company itself is analyzed. The team and the company's vision also play a major role, since a company itself always represents a brand. This embodies an attitude and contributes to the success of the product.
The competition and feasibility of the company is also a point of criticism, which should be included in the fundamental analysis. If the product is already represented on the market in large numbers, the pressure from the competition is high and the company may not be able to stand out from its competitors. The reverse is the case with an unrealistic undertaking, which probably cannot be put into practice. In this case, there are no competitors, but there is little chance of success in the future.
One of the most important criteria is the actual use and usability of the product. This point is particularly important for utility tokens . Many of the tokens have no real use and, at best, serve for simple transactions and the use of a blockchain. Others, on the other hand, fully exploit the possibilities and convince with an added value of the token, which gives the user a clear advantage. This is the case with many tokens in the area of decentralized financial transactions (DeFi) .
As with all other assets, the most important factor in pricing is the relationship between supply and demand.
Bitcoin fundamental analysis
The example of Bitcoin shows how fundamental analysis can work for cryptocurrencies.
Trust in the product
In the first ten years since its creation, Bitcoin has been slowly improving its bad image. While digital gold was initially stamped as a currency for criminals, in 2020 more and more popular investors will be enthusiastic about the technology.
There is also a strong community among users, and for most people investing in Bitcoin is a long-term investment. Under the motto "buy & HODL", the dollar cost averaging method and various Bitcoin savings plans are particularly popular. The BitPanda exchange, for example, offers its customers the creation of several Bitcoin savings plans .
Even though there is no official company behind Bitcoin, Bitcoin is still a very strong brand with a clear vision. In particular, the possibility of financial independence and cross-border transactions worldwide make Bitcoin a symbol of freedom.
In addition, there is no freedom of expression in many countries and critical statements are punishable. Bitcoin, on the other hand, is resistant to any censorship and thus offers an opportunity for free speech.
In addition to the actual use of Bitcoin, an extensive market for various accessories has also developed. The most popular include clothing, physical coins and digital art.
Competition and competition
So far, there are numerous other cryptocurrencies, many of which have the same properties as Bitcoin. In principle, some are even better designed and have additional functions. Nevertheless, Bitcoin continues to assert itself as the market leader and there is no foreseeable change in this leadership position.
This is mainly due to the strong trust in the product, as well as the high security through the Bitcoin Blockchain. Due to the enormous hash power, which secures the network consistently and makes subsequent changes impossible, Bitcoin is a lot more secure than smaller blockchains of the competition.
The strong focus on Bitcoin as the market leader makes it very difficult for the competition to build a similarly strong network. In addition, many industries have already fully designed Bitcoin and thus support the industry enormously.
Handling Bitcoin in 2020 is already easier than managing most online bank accounts. Only a wallet on the computer is required for safekeeping and transactions are simple and unmistakable.
There are also other applications, such as the storage of evidence on the Bitcoin blockchain and many other third-party services. The creation of own coins on the Bitcoin blockchain can also experience a new upswing through sidechains like liquid .
supply and demand
In the case of Bitcoin, the maximum circulation supply is limited to 21 million pieces. This creates a limitation and prevents excessive inflation. In 2020 there are only 18.4 million Bitcoin in circulation and the maximum number will only be reached in 2140.
Bitcoin is still at a very early stage and is more or less unknown to most people. Nevertheless, interest and demand are steadily increasing, suggesting positive growth. The market capitalization at the time of the publication of the article amounts to approximately 152 billion euros and thus 65% of the entire crypto market. This results in a unit price of 8,200 euros per Bitcoin.
Conclusion: The fundamental analysis also works with cryptocurrencies
The quality of a fundamental analysis depends on the accuracy of the data. The more precisely these values are used, the more decisive the analysis will be. The basic requirement is that the respective data is correct and has not been falsified.
The following addresses have proven to be helpful as transparent and verified sources for research:
Most of the existing cryptocurrencies are listed on Coinmarketcap , ordered by market capitalization. Since 2020, the site has been in close cooperation with Binance, the world's largest exchange for cryptocurrencies .
As an alternative to Coinmarketcap itself provides Coingecko on. The site also offers more features and is completely in German.
The Coinforum is the German-speaking community around Bitcoin and cryptocurrencies. Here users can create their own contributions and stimulate discussions. There is also a lively exchange on fundamental analysis and price development.
Bitcointalk attracts crypto enthusiasts from all over the world, which is why the site is mainly in English. However, there are also sub-forums for the respective national languages.
Coinmarketcal is a calendar in which the most important events in the field of cryptocurrencies are noted. The course development is often dependent on certain news , so it always pays to stay up to date.