Deepen Your Understanding of Cryptocurrency Valuation: Fundamental Analysis from Beginner to Expert

Entering the world of digital assets is full of opportunities but also presents challenges. If you’re still viewing the cryptocurrency market with traditional thinking, that’s a missed opportunity. Truly smart investors have already mastered a systematic evaluation method—this is exactly what we will discuss today.

The Real Face of the Current Crypto Ecosystem

Walking down the street, you’ll notice more and more people talking about Bitcoin and Ethereum. This is no coincidence. According to survey data from the University of Chicago, the vast majority of participants in digital asset trading are under 40 years old, and this demographic is changing the financial ecosystem.

The market size growth is even more astonishing. The total market capitalization of the entire crypto asset ecosystem once surpassed $3 trillion, a tenfold increase since early 2020. As of the time of writing, there are over 25,000 types of digital assets registered worldwide. Industry forecasts suggest that by 2030, the total industry market cap will reach $4.94 trillion, with an average annual growth rate of about 12.8% during this period.

However, volatility has always been the theme song of this market. To win in this game, relying on luck alone is far from enough. Whether through fundamental analysis or technical analysis, both can help investors reduce risks and make more rational decisions.

What is Trading? Why Focus on Fundamental Analysis?

The essence of trading is simple: buying and selling assets. In financial markets, the objects we trade are called financial instruments—stocks, bonds, foreign exchange, futures, cryptocurrencies, etc. Different trading strategies (day trading, swing trading, trend trading) require different analysis methods.

For crypto traders seeking stable profits, understanding the relationship among fundamental analysis, technical analysis, and market sentiment analysis is crucial. Fundamental analysis helps you find the “true value” of a coin, while technical analysis tells you when to enter and exit. Combining both gives your decisions more confidence.

Fundamental Analysis: The Compass for Investment Decisions

Fundamental analysis is a systematic approach used to evaluate the intrinsic value of an asset or company. It involves analyzing multiple internal and external factors to determine whether an asset is overvalued or undervalued.

This method is not new. As early as 1934, the book “Security Analysis” proposed that investors must thoroughly research all fundamental factors related to the target before investing. The logic is straightforward: the deeper your understanding, the more accurate your decisions.

Traditional stock market fundamental analysis relies on specific indicators—such as Earnings Per Share (EPS) and Price-to-Book ratio (P/B). These indicators can directly show a company’s true value. But the crypto world is different. Since this market is still young and has not yet formed a universal, comprehensive valuation framework, blockchain data transparency has opened new analytical windows for us.

Crypto Fundamental Analysis: A Unique Evaluation System

Cryptocurrency fundamental analysis introduces a new field—on-chain data analysis (On-chain Metrics). These indicators come from publicly available blockchain data and can reflect the real activity on the network.

Unlike traditional stock and forex markets, on-chain fundamental indicators have limited roles. But as the market matures, more precise evaluation methods are gradually forming.

What Three Types of Indicators Should Be Considered When Evaluating a Coin?

First Category: On-chain Data Metrics

What is the biggest advantage of blockchain? Transparency. Every transaction is recorded on a public ledger, meaning we can extract investor behavior patterns from vast amounts of data.

Unlike other assets, cryptocurrencies give us the opportunity to quantify market sentiment through data. Analyzing on-chain data is not about speculating based on rumors but based on real economic activity.

The value of a coin can be divided into two parts: speculative value and utility value. High-quality on-chain analysis can help you distinguish between these two. For example, by observing user adoption rates and miner activity, you can assess whether the fundamental supports the current price.

How to Obtain On-chain Data?

Good news—you don’t need to manually dig data from databases. Various API interfaces provide rich tools that enable investors to make more informed decisions. For example, with Bitcoin, data from platforms like CoinMarketCap can provide key information such as hash rate, active addresses, trading volume, and transaction fees.

Hash Rate: A Barometer of Network Health

Hash rate measures the total computational power of a proof-of-work (PoW) blockchain network. Simply put, the higher the hash rate, the more secure the network and the harder it is to attack.

When the hash rate rises, it indicates more miners are attracted to the network, usually meaning lower mining costs or higher profits. Conversely, a declining hash rate suggests miners are leaving—thinking mining is no longer profitable. This phenomenon is called “miner capitulation.”

Miner decisions are influenced by multiple factors: coin price, processed transaction volume, transaction fees, and the fundamental costs—electricity and hardware.

How is hash rate calculated? Miners solve complex mathematical problems based on transaction data. These computers generate millions or even billions of “guesses” per second to find the answer. These hash values are random alphanumeric codes representing a unique piece of data. The first miner to find the correct answer can generate a new block; after other miners verify it, the block is added to the chain, and miners receive newly mined coins as rewards.

Bitcoin currently uses proof-of-work to validate transaction blocks. Bitcoin Cash, Bitcoin SV, Dogecoin, Litecoin, and Monero also adopt the same mechanism.

Active Addresses: A True Reflection of User Engagement

Active addresses refer to blockchain addresses that have transaction records within a certain period. There are various ways to calculate active addresses: one is to count all senders and receivers of transactions within a specific cycle (e.g., one day, one week, or one month); another is to cumulatively count all addresses that have ever appeared; a third method compares the change in the number of addresses within the same period.

Trading Volume and Transaction Fees: Indicators of Market Vitality

Consistently rising trading volume indicates active circulation of a coin in the market. Transaction fees work like an auction—users bid higher fees to prioritize confirmation.

Take Ethereum as an example; Gas fees are the implementation of this mechanism. Different coins may have different fee structures, but the logic is the same: higher bids get prioritized, lower bids wait.

In PoW networks, miners’ earnings include block rewards and transaction fees. But over time, block rewards decrease (this is called “halving”), and the proportion of transaction fees increases. Otherwise, miners’ earnings will keep declining, eventually leading them to exit, which poses a serious threat to network security.

For example, Bitcoin has a circulating supply of 19,967,300 BTC out of a maximum of 21 million. Historically, about 3.7 million BTC are permanently locked or lost, including approximately 1.1 million BTC belonging to Satoshi Nakamoto.

Second Category: Project Metrics

If on-chain data is quantitative analysis, then project metrics are qualitative analysis. This part concerns people, vision, and execution capability.

Team Background Cannot Be Ignored

Investment master Warren Buffett once said that the team and their experience are key factors for any project’s success. The same applies in the crypto space.

When doing project due diligence, ask yourself:

• Do team members have successful track records in this industry?
• Do their skills and experience meet the goals?
• Without this team, can the development community operate independently?
• Have they been involved in suspicious projects or scams?

The activity record on GitHub is very important. A coin with a stable development plan is definitely more worth paying attention to than one whose repositories haven’t been updated for years.

White Paper: The Business Card of the Project

The white paper is a document every potential investor should read. It clarifies two key questions: What are the project’s goals? What is the technical foundation?

A well-designed white paper makes a project appear legitimate and professional. A good white paper leaves a strong impression; a poorly written one can be off-putting. Bitcoin’s white paper remains the industry benchmark; published by Satoshi Nakamoto in 2008, it describes a vision that would fundamentally change finance.

Competitive Landscape Analysis

Before choosing an investment target, look at the competitors. Understanding their strengths and weaknesses helps you more accurately assess the true position of your target coin. Coins that seem very attractive on the surface may lose their shine after a competitive analysis.

Roadmap: The Blueprint for the Future

A clear roadmap shows investors what the project plans to do next. It sets specific goals and milestones for the development team, allowing investors to evaluate progress and product quality. Through the roadmap, we can track the project’s development pace and make more informed investment decisions.

Third Category: Financial Metrics

This part involves more quantitative data. The following five indicators are standards many investors and traders use to determine whether a coin is worth buying.

Market Cap

Market cap equals the coin price multiplied by circulating supply. It reflects how much capital has flowed into the network.

Coins with large market caps are usually more stable. Like a large ship in big waves, they tend to be more resilient. Bitcoin, as the highest market cap crypto asset, is currently priced at $88.75K, with a circulating supply of 19,967,300 coins, and a market cap of $1.772 trillion. Even so, Bitcoin cannot completely avoid volatility.

Small-cap coins are more susceptible to market fluctuations—they can skyrocket or plummet. That’s why many retail investors are attracted to small-cap tokens—potentially higher returns.

Calculation formula: Market Cap = Current Price × Circulating Supply

Liquidity and Trading Volume

Liquidity describes how easily an asset can be converted into cash. In crypto markets, high liquidity means you can easily exchange coins for fiat or other tokens.

Low liquidity = inactive market = sharp price swings. High liquidity = stable market = relatively lower risk. When liquidity is sufficient, buy and sell orders execute faster.

The “24-hour trading volume” figure is very telling. It shows how active a coin is. High trading volume combined with price increases suggests the rally may be sustainable; but if the price moves on low volume, it might be just a fleeting spike.

High trading volume usually indicates a healthy market and boosts investor confidence. It shows many people are buying and selling this coin.

Circulating Supply

Circulating supply refers to the total number of coins currently available in the market for trading. Unlike maximum supply, it can change over time.

This number is not always precise. It’s hard to determine which coins are locked in long-term holdings or have been burned or lost permanently. For Bitcoin, with a circulating supply of 19,967,300 coins, millions of BTC have been permanently removed from circulation, greatly reducing the actual circulating supply.

When choosing an investment target, don’t be fooled by “cheap” coin prices. This is the so-called “price bias”—some people want to buy just because the coin’s price looks low.

Max Supply

Maximum supply is the upper limit that this coin will never exceed. Bitcoin’s max supply is 21 million coins. Currently, about 19.967 million have been mined, leaving 2.1 million to be mined. Ethereum’s current circulating supply is 120.7 million, with a market cap of $358.68 billion.

But not all coins have a supply cap. Factors like max supply, circulating supply, and inflation rate influence investment decisions. Some coins are designed with a gradual reduction in new coin issuance, which is attractive to investors who expect supply shortages.

Combining the Three Types of Indicators

• Look for projects with high growth potential
• Focus on ecosystems with strong network effects
• Avoid being swayed by personal biases

Summary: Becoming a Smarter Investor

The digital economy is expanding rapidly, and new information emerges daily. Mastering fundamental analysis can give you insights that technical analysis cannot provide. Distinguishing market price from “true” value is an essential skill in trading.

Of course, technical analysis is also crucial—it helps you determine entry and exit points. Fundamental analysis helps you forecast long-term trends. That’s why most professional traders use both methods simultaneously.

These seemingly simple financial indicators can quickly give you an overview of any project. I hope this article helps you grasp the core elements of Crypto Fundamental Analysis, so you can trade with more confidence. Remember, in-depth analysis is always the foundation of rational investing.