Conducting Fundamental Analysis in Cryptocurrency

For decades, investors and traders have always sought various ways to find assets that can
yield substantial profits. These methods range from analyzing price charts, company profits,
and macro market conditions. Warren Buffet, one of the iconic successful investors, uses
fundamental analysis as one of the pillars in selecting assets. Fundamental Analysis then
became one of the most widely used analytical techniques in the stock asset market. Along
with technical analysis, both can help investors and traders choose the assets they want.
Today, fundamental analysis is often used in the crypto world for the same purpose. So, what
is fundamental analysis in cryptocurrency? How do you use it to select the right asset? This
article will explain fundamental analysis comprehensively.

Article Summary

 💸 Fundamental Analysis (FA) is the process of measuring the value of an asset based
on economic factors, management, technology, and other related aspects.
Fundamental analysis is a method used to measure the 'real' value of an asset relative
to its position in the market.

 This analysis is an essential part of the process of selecting crypto assets because it
gives us a general overview of the assets we are about to choose. In the context of the
crypto market, fundamental analysis is also important in helping us determine the
value of a crypto asset.

 🔎 Crypto fundamental analysis involves identifying the real value of an asset by

reading the whitepaper to find information about the technology, tokenomics, and the
problems it solves. Knowing the team behind a crypto project is also crucial to avoid
fraud. Understanding all of this will allow you to identify whether a project has good
fundamentals or not.

What is Fundamental Analysis (FA)?

Fundamental Analysis (FA) is the process of measuring the value of an asset based on
economic factors, management, technology, and other related aspects. In stock assets,
fundamental analysis means looking at a company's balance sheet, management structure,
and market trends that may affect the asset. Fundamental analysis is a method used to
measure the 'real' value of an asset relative to its position in the market. Through FA, we can
determine whether an asset has reached its potential real value or not.

In the crypto world, fundamental analysis means determining the value of a crypto asset in
the context of what it wants to achieve and its position in the crypto market. Finding the real
value of a crypto asset means analyzing what problems it aims to solve through its
technology and whether it has a role in the market. Additionally, FA for crypto assets is also
related to understanding the team behind the project and its tokenomics.

Fundamental analysis is one of two methods of analysis in selecting and purchasing crypto
assets. The other method is technical analysis, which deals with price charts and observing
asset movements.
Why is Fundamental Analysis Important?

Fundamental analysis of cryptocurrency is an essential part of the process of selecting crypto

assets because it gives us a general overview of the assets we are about to choose. Just like
researching stocks that we will buy, FA in crypto provides us with information about the
organization and team as the 'company' behind a crypto asset. This analysis is also useful in
distinguishing between scam projects and serious projects that have value.

In the context of the crypto market, fundamental analysis can help us determine the value of a
crypto asset. If a project has strong fundamentals but its market capitalization is still low and
not yet popular, it is undervalued. This means the project has not yet reached its potential
relative to its fundamental value.

Conversely, a crypto project with a high market capitalization but weak fundamentals can be
considered overvalued. Crypto assets in this category may attract many people due to
marketing or have a strong community, leading many people to buy and hold them.

How to Conduct Fundamental Analysis?

Reading the Whitepaper The whitepaper is a document that contains complete information
about a crypto project. In a company, this document is similar to a prospectus. A good
whitepaper will be systematically structured, free of typos, detailed, and complete with
information. If a crypto project has an unprofessional whitepaper or even lacks one, you
should be cautious as it may be a scam.

Analyzing the whitepaper is a crucial part of fundamental analysis for cryptocurrency

because this document contains much essential information about a project. Reading the
whitepaper can give you a broad overview of the project, including the problems it solves, its
target market, the technology it uses, and the team behind it.

Questions to consider when reading the whitepaper:

1. Why was it created and what problems does it aim to solve?

2. How is the technology used? Is it designed to be user-friendly for many people?
3. Who are the team members behind the project? You need to dig into their
backgrounds!
4. Does it have a roadmap? If so, is the roadmap explained in detail?
5. Who are the investors? What percentage of tokens do early investors hold compared
to public sales?

Investigating the Team In the rapidly evolving world of crypto, where innovation and many
new projects are created, knowing the team behind a crypto asset is an important part of
fundamental analysis for cryptocurrency. Crypto asset scams, known as rug pulls, often occur
where the team behind a project absconds with investors' money through smart-contract code
manipulation.

Therefore, you need to research the team behind a crypto project. Pay attention to their
backgrounds, track records of experience, and whether they have been involved in fraud or
other criminal activities.
Moreover, be cautious with crypto projects whose developers are 'anon' (anonymous) and do
not provide public identities. While privacy is a right for everyone, many anon crypto

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projects end up in scams. Some projects with many anon developers at least have a few
public team members handling specific areas like community or marketing. Always be
cautious when dealing with projects with anon teams.

Understanding Tokenomics One of the most important yet often overlooked aspects of
fundamental analysis in cryptocurrency is tokenomics. Tokenomics refers to everything
related to token distribution, how tokens are circulated into the market, token utility, and the
creation of new tokens. All these elements are crucial factors that can influence an asset's
price at various stages.

The image above shows the distribution of FTM tokens, which can be divided into 60% team
and investor tokens and 40% publicly sold tokens. Ideally, the token distribution sold to the
public should be larger than the team and investor tokens. However, such distributions are
common in many projects, and as long as the team actively develops the crypto asset
ecosystem, this can be tolerated.

Another aspect to consider is the vesting period, which is the lock-up period for tokens
purchased by early investors (seed investors). This period is important because if investor
tokens can be released just a few months after the launch, it is likely that investors who have
already made a 1000% profit or more will sell their tokens.

Mass token sales will cause a supply shock and send the asset price plummeting. The ideal
vesting period should be released gradually over 1, 2, or 3 years after the token launch, so
investors can only sell small amounts periodically.

You should be cautious of projects with unbalanced token distribution percentages (e.g., 80%
investor and 20% public) and short vesting periods (only 6 or 8 months). Such projects
usually only benefit early buyers and investors, making them a Ponzi scheme.

Understanding the Target Market, Community, and Competitors Another crucial aspect
of conducting FA is understanding the market context of the crypto asset you are researching.
This means you need to have an understanding of the role of the crypto asset in the crypto
market. You need to understand what problems it solves and how it provides those solutions.

Additionally, who is the target market for the asset? Some crypto assets are created to achieve
mass adoption, so their technology is designed to be as user-friendly as possible (Fantom,
Terra Luna, Ethereum). However, some crypto assets are made for other crypto developers
and institutional users, such as Chainlink, Ocean Protocol, and The Graph.

After understanding the market context and the role taken by a particular crypto asset, you
need to map out its competitors. Does it have advantages that its competitors do not? Or does
it have a stronger community than other competitors? These factors need to be researched to
assess the fundamentals of a crypto asset.

On-Chain Analysis On-chain analysis is an analysis you conduct by obtaining various data
related to the blockchain of a particular crypto asset. The data you seek is related to the
blockchain usage of the asset you are researching. This analysis is conducted to see the level
of activity and users of the crypto asset.

Some important data to pay attention to in on-chain analysis are the number of active
addresses and the number of transactions. These two data points refer to the number of active
users and the number of transactions on the blockchain. Blockchain activity can indicate
whether an asset has consistent active users. Additionally, data such as transaction volume
and the amount of staked assets in PoS (proof-of-stake) crypto assets can also measure user
activity intensity. You can obtain various on-chain data using popular sites like CoinMetrics
and Glassnode. Some data can be accessed for free, while others may require payment.

What are the Characteristics that Distinguish Real and Fake Crypto Projects?

Identifying Red Flags of a Crypto Project:

1. No whitepaper.
2. A poorly written, unsystematic, and overly abstract whitepaper.
3. A team with a history of fraud.
4. Poor tokenomics: dominated by tokens held by the team and early investors.
5. Not undergoing smart-contract audit processes.
6. Hiding token information and lacking transparency.
7. Fake or inactive social media.

Characteristics of Genuine Crypto Projects:

1. A clear, systematic, and detailed whitepaper.

2. A credible team with relevant expertise and experience.
3. Technology that provides solutions to significant problems in the crypto or real world.
4. Balanced tokenomics between tokens sold to the public and team/investor tokens.
5. A transparent team that regularly updates on project developments.
6. Active social media and a strong community.

Purchasing Crypto Assets

You can start investing in crypto asset tokens by purchasing them on the Pintu app. Here's
how to buy crypto on the Pintu app:

1. Create a Pintu account and follow the identity verification process to start trading.
2. On the homepage, click the deposit button and top up your Pintu balance using your
preferred payment method.
 3. Open the market page and find your favorite coin.
4. Click buy and enter the amount you want.
5. Now you have crypto assets!

Additionally, the Pintu app is compatible with various popular digital wallets like Metamask
to facilitate your transactions. Download the Pintu cryptocurrency app on the Play Store and
App Store! Your security is guaranteed as Pintu is regulated and supervised by Bappebti and
Kominfo.

You can also learn more about crypto through various Pintu Academy articles updated
weekly! All Pintu Academy articles are created for educational and informational purposes,
not as financial advice.

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References:

 A COMPLETE GUIDE TO FUNDAMENTAL ANALYSIS OF

CRYPTOCURRENCIES – DCX Learn, accessed on February 16, 2022.
 Fundamental Analysis in Cryptocurrency Trading, Gemini, accessed on February 16,
2022.
 Fundamental Analysis vs. Technical Analysis: Which One Is Better?, Coin Market
Cap, accessed on February 16, 2022.
 How to Do Fundamental Analysis For Cryptocurrency, Liquid, accessed on February
17, 2022.
 Jeff Dorman, Jeff Dorman: Fundamental Investing Is Alive and Well in Crypto, Coin
Desk, accessed on February 17, 2022.
 EXMO, What is fundamental analysis in crypto trading | by EXMO | exmo-official,
Medium, accessed on February 17, 2022.
 Interdax, How On-chain Analysis Helps Crypto Traders | Interdax Blog, Medium,
accessed on February 17, 2022.