There are two broad sets of actors within the crypto space: traders and investors. These two groups are not limited to individuals alone; institutional traders and investors are equally active players within the crypto space. As traders or investors, should we rely on fundamental or technical analysis of crypto projects?
How should traders and investors analyse these types of projects in deeper detail with fundamental or technical analysis?
Traditionally, fundamental analysts concern themselves with an asset’s value by looking at its financial statements, including income statement, balance sheet and cash flow statement. In the cryptocurrency industry, most companies are either privately held or operate a DAO. In this context, fundamental analysis will look for parameters such as:
Market cap: This is short for market capitalisation. It is calculated by multiplying the price of a crypto project’s native coin or token by the circulating supply. The rule of thumb here is that a high market cap suggests that the project is healthy and not readily susceptible to market manipulation by whales or pump and dump schemes.
Liquidity: The ease with which you can easily buy and sell any particular crypto matters a great deal. Cryptocurrencies are usually available for trading on exchanges. Even when they are, the bid-ask spread of any currency on trade shows how liquid they are. The bid-ask spread is the gap between the highest bid and the lowest ask. Generally, lower spreads indicate higher liquidity.
Tokenomics: This covers the token size, allocation and monetary policy of any particular crypto. A token with too much circulating supply suggests it’s not scarce. Hence it may become diluted in price. How the tokens are allocated also affects how well the crypto project may fare. A project with the team and a few people controlling a large amount of the total supply suggests that crypto may face concentration risk, where a dump by any of the few large holders may badly affect that token price. Finally, the monetary policy of any crypto project is also essential to consider. How does it handle inflation which may dilute token prices over time? For example, Bitcoin employs halving, Ethereum adopted EIP-1559, Binance follows a quarterly buyback and burn etc.
P/E ratio: The price-to-earnings ratio is expressed as a percentage and means how much the market is willing to pay for every dollar generated by the company. It helps to know if a coin/token is already overbought or sold. Another way is by calculating the Net Value to Transactions (NVT).
NVT Ratio = Market Cap/Volume of On-Chain Transactions over 24hrs.
A low NVT ratio suggests a good buy as it means the tokens are not overvalued compared to network usage.
Team: Founders or the management team of any crypto project significantly impact how it will fare in the industry. Take, for instance, Ethereum. Vitalik Buterin, alongside brilliant developers like Gavin Wood, Charles Hoskinson, launched Ethereum, which has grown tremendously today. Since then, Gavin Wood has founded Polkadot while Charles created Cardano. Anyone considering fundamental analysis when making crypto investment decisions would most likely back the new projects created by Ethereum’s early founders because of their antecedents. For fast-rising crypto projects like Binance and SwissBorg, their success has been primarily due to the quality of their team. Cyrus Fazel of SwissBorg is becoming one of the most influential crypto founders, with SwissBorg’s recent growth. At the same time, CZ of Binance is known for his brilliance in execution, leading the largest cryptocurrency exchange by daily trade volume.
Token utility: A token's utility refers to the guarantee of holders who purchase a project coin/token to consume some of the network's products with such tokens. Ether, used for paying transaction fees, powers the Ethereum network, Cardano network users pay fees using ADA, the network’s native token, and SwissBorg app users can lock their BORG to enjoy Premium services. The utility of any crypto project must be ironclad; otherwise, it is just one of the many other tokens not good for anything other than speculation.
Community size: Size also matters as a considerable metric in fundamental analysis. A large community would most likely mean that the project’s token serves a vital utility. And more users flooding into a particular crypto project makes it easier to achieve critical mass and generate a network effect. Therefore, fundamental analysis considers the size of the crypto project community to assess if it will perform in the long term.
Technical analysts concern themselves with the price and volume data, studying patterns on a chart created by price to determine where the market will move next, based on historical performance. Technical analysis involves the careful study of price charts spanning different intervals such as minutes, hours, days and months.
Some key level analysts look for support and resistance levels, with support acting as a floor at the bottom of the current price range and resistance acting as a ceiling above it. For example, if Bitcoin were ranging between $53,000 and $57,000, $53,000 would be support, and $57,000 would be resistance. If the token’s price broke below support, that would be a bearish signal, while breaking above resistance would be bullish.
Many technical analysts use indicators such as moving averages, Bollinger Bands, and MACD to gain more information about a price and make better forecasts.
Technical analysis demands a bit of mastery when compared to fundamental research. The rule of thumb here is that the longer trends produce more reliable outcomes than shorter trends.
Both fundamental and technical analysis seek to predict price movements using different approaches. The difference between the two is that while fundamental analysis in crypto may consider non-monetary parameters like the team behind a project, the utility of the token, and the community’s size, technical analysis is solely fixated on the price movement of cryptocurrencies based on past records.
Like I pointed out earlier, most crypto players fall under two categories; traders or investors. Even the traders can choose to trade for more extended periods than extremely brief or short periods like scalping or day trading. Investors, on the other hand, have a long-term outlook while considering crypto. Regardless of the analysis method you prefer, both have their advantages and disadvantages.
The pros of fundamental analysis include:
However, there are some cons to fundamental analysis:
The pros of technical analysis include:
The cons of technical analysis include:
On the subject of fundamental and technical analysis, SwissBorg makes things significantly easier for traders and investors in cryptocurrencies by offering automated analysis of each of the app’s tokens.
The team developed an automatic asset analysis that is updated hourly for all the products listed in the SwissBorg app. The app uses automated analysis through artificial intelligence (AI) to assist users in forecasting Bitcoin and other cryptocurrencies systematically. Crypto traders and investors get hourly analysis of their favourite coin listed in the app.
This analysis intelligently combines the Cyborg Predictor (which provides a prediction for the next 24 hours), the SwissBorg Indicator and other indicators such as RsI, MACD, Bollinger Bands, community sentiment over the last 24 hours, showing technical analysis results, market statistics and more. In a nutshell, SwissBorg offers the best tools for weighted investments.