How to evaluate any crypto project using fundamental analysis

Fundamental analysis is the process of finding the intrinsic value of an asset, with the goal to determine whether the asset is overvalued or undervalued. That information can then be leveraged along with technical analysis to decide whether to invest in or trade an asset.

In cryptocurrency fundamental analysis, the approach is somewhat different than that typically used to evaluate legacy market assets. Crypto assets don’t have the historical data required, because there’s usually no history of earnings reports or profit and loss statements.

For cryptocurrency analysis, all the available information on the asset needs to be sought out through research that includes investigating its use cases, its network, the team behind the project, vesting schedules, the list goes on. By looking at the right set of factors, traders can determine the fundamental value of an underlying project before investing.

Here are the 10 steps found to be most useful:

1. Read the white paper

Especially for long-term, buy-and-hold investing, it is critical to read a token’s white paper. This is the document that gives an intentional and detailed overview of a project. A good white paper explains:

• The project’s goals
• The use cases and distribution
• The team’s vision
• The technology behind the token
• Plans for upgrades and new features
• How the token provides value to users

2. Assess the claims of the white paper

Be skeptical because the people behind projects can bend, or even break, the truth.

This happens more often than most realize. For example, Michael Alan Stollery, the CEO and founder of Titanium Blockchain Infrastructure Services, raised $21 million in an initial coin offering (ICO).

He later admitted to falsifying parts of the project’s white paper.

It’s important to ask some hard questions and get complete answers before putting one’s money into a project.

Some questions to consider:

• Are the tokens really distributed the way they promise?
• Are they meeting the road map expectations?
• Are they inventing a problem just to solve it?
• What are other people saying about it?
• Are there any red flags?
• Do the goals seem realistic?

3. Look at competitors

According to some industry sources, nearly 40% of cryptocurrencies that were listed in 2021 no longer exist.

That serves as an important truth investors need to take into account; a lot of projects — close to half and it could be even more — fail, and fail miserably.

Scrutinizing a project’s white paper reveals the use case the crypto asset is targeting and the problem it is trying to solve. One should then consider whether or not that use case is, in fact, viable and wanted.

Furthermore, it’s important to identify competing projects and examine existing projects this new one might replace, if successful. Bottom line: Smart investors are looking to see if this project is better than others or not.

4. Look at the team behind the project

A project is only as good as the team behind it.

The people offering the project must have precisely the right skills to make their project work. The white paper should have information about each member of the team, but doing some independent research can be helpful too.

Some questions to consider about the people behind any project:

• Have they worked on other reputable, successful projects in the past?
• What are their credentials? Are they experienced?
• Are they reputable members of the crypto community and blockchain ecosystem?
• Have they been involved in any questionable projects or scams?

What if there is no team? Then look to the developer community.

Find out if the project has a public GitHub. Check to see the number of contributors and activity levels. The more consistent development activity on a project the better.

5. Look at on-chain metrics

On-chain metrics are available by looking at data on the blockchain.

The data can be pulled from websites or APIs — such as on-chain analysis, data charts and project reports — specifically designed to inform investment decisions.

Some of the data worth considering:

• Transaction count — a measure of activity taking place on a network. The more activity, the better.
• Transaction value — how much value has been transacted within a period of time. The higher this number is, the better.
• Active addresses — how many blockchain addresses are active at any point in time. Again, the more active addresses, the better.
• Fees paid — how the demand for block space is growing or shrinking for a token based on fees.
• Hash rate — a measure of the network health in proof-of-work cryptocurrencies. The higher the hash rate, the more difficult it is to successfully mount a 51% attack.
• Staking — the amount staked at a given time shows the interest level, or lack of it, in the project.

6. Look at the tokenomics

Invest in projects that create useful tokens, otherwise, the token may not have…