Fundamental analysis describes the process of finding the intrinsic value of a given cryptocurrency. It’s a holistic method that takes into account a variety of factors to find out whether a cryptocurrency is overvalued or undervalued.
In many cases, this involves looking past the cryptocurrency itself to the company behind it and the market in which that company is operating.
Fundamental analysis frequently begins with a look at the economy as a whole. What are the long-term trends in crypto? Is the market in a generally bullish or bearish state? What’s the market cap of the cryptocurrency sphere as a whole?
The focus then narrows to the particular field in which the cryptocurrency plans to operate. If it’s a coin that proposes to introduce the blockchain to the healthcare industry, for example, then what is the current state of the healthcare industry? Are there clear problems that the coin can address, and would solving those problems add value either to the coin or to the industry?
Once the big picture is established, work begins on sifting through the coin’s fundamentals. What is the total supply and the circulating supply? Who is on the development team? Does the coin have any major competitors, or does it address a need in the market that isn’t being fundamentally served elsewhere?
Finally, focus is brought onto the real dollars and cents behind the coin. Does the company have expenses or earnings? Is it generating revenue now, or is it just a white paper and some ambition? If the coin is successful in its goal, how much money could it potentially earn for investors? A coin that purports to revolutionize international banking, for example, might carry considerably more intrinsic value than a more niche coin – say, a coin developed for trading online gaming currencies.
Technical analysis assumes that all the previous factors are already baked in to the price currently displayed on candlestick charts and other trend indicators. It doesn’t ignore the intrinsic value, but it considers it a factor beyond immediate consideration. In other words, the price is what it is. The big question is what the price will do next.
This is accomplished by looking for time-tested pattern indicators in the coin’s daily price and volume. There are hundreds of such indicators with colorful names like inverted hammer, hanging man, and evening star.
These names represent certain patterns of price and volume that become apparent when looking at a given coin’s chart. For example, a long shadow on a coin’s daily candle topped by a short and fat candle body is known as a hammer, and it generally signals a coming drop in prices. The long shadow represents the day’s low prices, and the body represents the opening and closing prices. The hammer says that the coin’s opening and closing prices were relatively close, but there was heavy pressure by the market to push prices downward. It’s reasonable to expect, then, that prices will fall over the next few trading days. An inverted hammer presents just the opposite picture. A long upper shadow and a squat candle body signal relatively close opening and closing prices with heavy pressure from the market to move up in the near term.
Although fundamental and technical analysis use different systems to arrive at and predict the expected price of a cryptocurrency, they are equally valid and have their fair share of pros and cons. Fundamental analysis takes a deeper view and presents the theoretical “true” value of a given coin, where technical analysis is grounded in reality and what the coin is actually doing at a given point in time.
Both analysis techniques are simplified by the Zeon Trading Platform’s complete toolset for advanced, professional trading. Moreover, these tools can be deployed across many exchanges at once due to the platform’s unique aggregation system, presenting information from nine top crypto exchanges simultaneously.