Lesson 7: Invest Smarter With Fundamental Analysis

Welcome to the seventh lesson in Kriptomat’s guide to fundamental investment strategies. In this lesson, we’ll show how fundamental analysis can make you a smarter investor.

As you may remember from our Fundamental Investment Concepts course, technical analysis is based on finding trends and cycles in price charts, while fundamental analysis is based on the study of economic, financial, political, and social factors that influence the prices of cryptocurrency and other assets.

• With fundamental analysis, you look beyond price charts.
  
• Your goal is to assess whether a particular cryptocurrency is likely to grow in value over time.
  
• For most cryptos, that means evaluating the viability of the particular dApp (decentralized application), game, or DeFi app the crypto was created to support.
  
• For example, you might note the explosive growth of the remittance market, in which a family member moves abroad for a good job and sends money back to the family regularly. That’s a market that Ripple is targeting with its XRP cryptocurrency.
  
• According to the principles of fundamental analysis, your decision about whether to add Ripple to your portfolio should take your assessment of the remittance market into account. Will it continue to grow? Can Ripple maintain or grow its share of the market?

Financial advisors have identified three types of fundamental analysis

• With economic analysis, you evaluate the state of the market: inflation rate, unemployment rate, interest rates, price trends, and so on.
  
• In industrial analysis, you evaluate the prospects of a particular market segment. Maybe cryptos in the medical field are poised for growth, or in game development.
  
• Third is company analysis. In the crypto world, this means evaluating the app or ecosystem associated with the cryptocurrency. Is it up against established competitors? Is it from a new and untested team? Has it already saturated the market, with little opportunity to grow through building market share?

Let’s consider an example.

• If you are convinced that blockchain-based applications are the wave of the future, especially once Web3 and the metaverse take shape, then you might give Ethereum high marks as a potential investment. It is the leading platform for blockchain apps.
  
• A little more investigation might lead to misgivings about Ethereum, which is limited to processing about 15 transactions per second, worldwide.
  
• Further investigation could lead you to Ethernet competitors that have improved scalability, cryptocurrencies like Solana, Cardano, Polkadot, Avalanche, NEAR Protocol, Algorand, Cosmos, Fantom, and TRON.
  
• If you believe that the dApp market is poised for growth, then you might study these cryptos and add two or three of them, plus or minus Ethereum, to your diversified portfolio.

Let’s look at another example.

• News reports suggest that the gaming industry is predicted to enjoy double-digit growth percentages through the next decade. And some of these games are already being cited as forerunners to the Metaverse.
  
• Decentraland, The Sandbox, Axie Infinity, and Enjin are leaders in these two market segments.
  
• Buying one of these cryptocurrencies is like buying stock in the company. If the gaming platform performs well in the market, the value of the associated crypto will rise and you will share in the platform’s success.
  
• Buying several of the cryptocurrencies is like investing in the future of gaming and the metaverse.

Finding reliable information about potential crypto investments can be tricky

• If the crypto’s website has a public whitepaper, that’s a good place to start. It sets out the crypto project’s goals much like the prospectus companies publish before an initial public stock offering.
  
• Cryptocurrency platforms like Coinmarketcap and Kriptomat publish detailed analyses of cryptocurrencies and the projects behind them.
  
• For market segment growth, browse market analysts’ news releases at sites like PR Newswire, 24-7 Press Release, Presswire, and Business Wire.

Crypto investing is often presented in terms of technical analysis

• Technical analysis is based on the idea that future prices can be estimated reliably based on cycles and trends found in price history charts.
  
• Technical analysis has helped investors in conventional investment markets achieve profitable futures for more than a century.
  
• Fundamental analysis complements technical analysis by taking real-world events and trends into account.

So – what did we learn?

• The goal of fundamental analysis is to predict the success of a potential investment by studying its market niche, its plans, world economic trends, and other factors.

• A cryptocurrency’s white paper can provide insights into the founders’ goals and ambitions for the coin or token.

• If you identify a promising market niche with fundamental analysis, you might consider investing in multiple cryptos within that niche.

That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test!

What is fundamental analysis in investing?

The first and most basic step in analyzing an investment.

Analysis of the economic, financial, political, and other factors that influence the price of potential investments.

Using price histories to identify repeated cycles and estimate future prices.

Analysis of the blockchain’s performance under simulated loads.

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Which of the following is NOT a crypto market segment?

Decentralized finance apps.

NFTs.

Public-key cryptography.

Gaming.

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Why is it valuable to think of cryptocurrencies as companies?

Buying crypto is like buying stock in the project that issued the crypto.

The company name helps you find the prospectus and study it before purchasing coins or tokens.

It lets you use market cap as a way to evaluate the crypto’s management efficiency.

It’s a framework for evaluating marketing, sales, design, distribution, manufacturing, equipment and other costs.

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Where can investors find the most reliable research related to growth in different market segments?

Crypto platforms conduct research and publish the results on their pages.

The web pages of individual coins and tokens often include market projections.

Business publications like the Wall Street Journal and Forbes publish comprehensive lists of market research reports.

Research companies issue press releases about their most recent studies, which can be found on release distribution sites like PR Newswire.

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Which of the following is NOT a type of fundamental analysis?

Industrial analysis

Composition analysis

Company analysis

Economic analysis

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