Fundamental analysis in stocks and assets accompanies evaluation of the viability of a company according to its financial statements. If the statement looks good, we can know that the company has positive fundamentals and higher possibility to earn in it. However, to perform fundamental analysis for cryptocurrencies is different since there are no financial statements to analyze.
First, Cryptocurrencies are not corporations that shows financial statements, but are digital currencies that characterize as value or assets within a network. Cryptocurrency’s viability is not based on generating a profits, but directly depends on the participation of the users within the service, miners securing the network and the developers.
The crypto is in its early stages, and most of them are still in development stages. Which means that currently, there are limited cases to show the statistics of the record in the real world.
Therefore, fundamental analysis on cryptocurrencies must be done with different methods. Due to complex nature of crypto and their technology, it is more important for us to engage in research to know the viability and potential of the coin. This ensures that we make better investment decisions.
There are few factors that affects crypto value
-Utility
A coin must have a function that gives commission to people who are active in the community. A coin’s utility has strong relationship with its value. As an example, if anyone wants to execute commands and develop applications in the Ethereum, they need to have ETH as it will be converted into gas and work as the fuel for the Ethereum ecosystem. More the people executing transactions and develop apps, higher the demand for ETH and therefore, rises the prices up.
–Scarcity
Scarcity refers to the finite number of the coins. A fixed supply of a certain item assuming its demand increases, would increase its value in the long term. This creates scarcity and there will only a limited supply of coins in circulation. For example, Bitcoin’s maximum supply is fixed at 21 million coins, ans such coin that have a great utility and demand will definitely push its value up.
Some coins even apply the “burning” mechanism, which is an act of destroying a portion of the coin supply. This would decrease the supply of the coin, and increase the value.
–Perceived Value
A coin values as much as what the markets considers it to be, and how a project is valued depending on factors that are core to the development of the project. Additionally, collaborations and partnerships with credible companies is a good sign of expansion. News that can enhance the value in the eyes of the public are included as a successful launch of their beta version of their protocol/software. These are some positive indicators that will enhance the value of their coin.