Fundamental analysis is a methodology used to try to predict the behavior of a specific asset in the medium and long term. When it comes to cryptocurrencies, certain issues have to be taken into consideration so that the analysis is as accurate as possible.
One of these issues is the fact that cryptocurrencies are born from specific technological projects and, therefore, we can define, according to certain parameters, if the cryptocurrency is at some point undervalued and, therefore, its price will tend to rise in the future or whether it is otherwise overvalued and will tend to devalue over time.
From what approach should fundamental analysis in cryptocurrencies be taken?
There are two approaches to fundamental analysis that seek to make predictions accurately by segmenting information into strata that can go from macro to micro or micro to macro.
In the first approach, known as Top Down, the macroeconomic aspects are first analyzed, that is, the state of the world economy and the different factors that affect it.
In a second moment, the economic situation of the original country of the company and of the countries in which it is present is analyzed, in the case of Bitcoin, for example, which has a strong presence in Asian countries, the economic aspects of those countries greatly affect their behavior. Finally, the company as such, its shares are analyzed and, finally, the most promising sectors are analyzed to find the best options to invest.
Depending on your preferences, this could be a better approach to investing in Bitcoin. This approach seeks to do the exact opposite of the previous approach. In this case, you prioritize the specific investigation of the asset, to then scale to the economic situation of the country where it is located and finally the state of the world economy and how the latter could affect the behavior of the cryptocurrency.
What tools to use in fundamental analysis of cryptocurrencies?
In the fundamental analysis it is possible to use different tools, which will give you certain indications that you can use to finally predict what will be the movements that the asset value may manifest, and you will be able to define in which cryptocurrency you should invest.
You can use the periodic financial statements, the financial ratios, the valuation of the companies that issue the asset, the economic forecasts, the general economic information, that is, the news and important events and basically any information that is capable of modifying the value. of the asset and, therefore, that can be decisive for the path that you will choose in the investment.
The fundamental analysis in cryptocurrencies is a good technique to do holding, since it allows estimating long-term prices, for example, for three months or a year, since it takes different factors that could direct the asset to a certain price .
In any case, checking events with historical technical analysis can help to verify if there are similar precedents that have triggered specific reactions in the value of an asset, however, it is not 100% effective, especially with cryptocurrencies that have greater volatility and tendency to create bubbles of value.