In-depth Analysis: How to Make Smarter Investment Decisions Through Fundamental Analysis of Cryptocurrencies

Entering the digital asset space is full of opportunities but also hidden challenges. Especially when you need to understand this rapidly evolving financial ecosystem, the pressure can be even greater. Don’t worry—this comprehensive beginner’s guide will help you master crypto fundamental analysis—a powerful tool to assist you in making more rational decisions in the volatile digital asset market.

Whether you’re a novice crypto enthusiast or a seasoned trader looking to improve your analysis skills, this article offers practical insights, specific methodologies, and solid evaluation frameworks.

Current Market Overview

Digital currencies are emerging like mushrooms after rain, with prices fluctuating wildly. One thing is certain: a large influx of new capital has entered the market, with the total market capitalization of global crypto assets once surpassing $3 trillion—achieving a tenfold increase since early 2020. According to CoinMarketCap, over 25,000 digital assets are now registered. By 2030, the industry’s global market cap is projected to reach $4.94 trillion, with a compound annual growth rate (CAGR) of 12.8% from 2021 to 2030.

In terms of investor demographics, the majority are young traders under 40 (according to the NORC at the University of Chicago). Facing such market volatility, it’s not easy to determine which projects are viable and which need improvement. While crypto markets carry risks, combining fundamental and technical analysis can effectively reduce risk exposure.

Interestingly, the same factors can attract some investors while scaring others away. First, because the market changes rapidly, small investments can generate considerable short-term gains. Although there are differences between traditional stock markets and crypto markets, there are also similarities. Fundamental analysis strategies are helpful in both types of markets.

The Essence of Trading

Trading is the oldest economic activity—buying and selling assets. Assets can be commodities or services, with buyers compensating sellers with cash, sometimes involving barter.

The objects of financial market trading are called financial instruments: stocks, bonds, forex pairs, options, futures, margin products, and cryptocurrencies all fall into this category. Trading methods vary—day trading, swing trading, trend trading, and others.

To profit from crypto assets, you need to understand three dimensions deeply: fundamental analysis, technical analysis, and sentiment analysis. Not familiar with these concepts? We will explain each in subsequent content.

What is Fundamental Analysis? A Deep Dive into This Investment Tool

Fundamental analysis is a methodology used by investors to evaluate the true value of an asset or company. It assesses various internal and external factors to determine whether the asset is overvalued or undervalued.

By analyzing key indicators such as financial reports, industry trends, market conditions, and competitive landscape, investors can gain insights into the long-term prospects of an asset.

The concept of fundamental analysis originated from the book Security Analysis published in 1934. The authors advocated that before investing, one must comprehensively consider all fundamental factors related to securities. Traders use fundamental analysis to estimate the “intrinsic value” of an asset or company—the main goal is to judge whether it is overvalued or undervalued. This is a key tool to help traders make rational decisions and improve returns.

Traditional Financial Market Fundamental Analysis Methods

In traditional stock markets, fundamental analysis relies on specific indicators to assess a company’s true value, such as Earnings Per Share (EPS) and Price-to-Book Ratio (P/B Ratio). The former reflects the company’s profit per share, while the latter shows how investors value the company relative to its book value.

Analysts often benchmark multiple companies within the same sector to understand their relative positions. After conducting fundamental analysis, experts judge whether an asset is mispriced to guide investment decisions.

Cryptocurrency Fundamental Analysis: Specifics and Limitations

Crypto fundamental analysis introduces a new branch of data science—on-chain metrics—which extract information from publicly available blockchain data. These indicators include network hash rate, large holder holdings, address activity, transaction flow analysis, and more.

While such metrics are widely used in stock and forex markets, their applicability to current crypto assets is limited. Since these assets are still emerging, a unified, comprehensive valuation framework has yet to be established. The influence of fundamental factors on crypto prices is relatively limited. However, as the market matures, more precise crypto valuation methods will inevitably emerge.

Three Key Indicators for Evaluating Cryptocurrencies

When conducting crypto fundamental analysis, focus on three categories of key indicators:

• On-chain Metrics
• Project Metrics
• Financial Metrics

Financial Metrics System: Let the Numbers Speak

Fundamental analysis encompasses both quantitative factors and qualitative judgments. The same applies to crypto fundamental analysis. Here, we delve into five core financial indicators—used by investors and traders to determine whether a crypto asset is worth buying.

Investment Tips:
• Seek projects with high growth potential
• Focus on projects with strong network effects
• Avoid decisions based on biases

Market Capitalization: The Primary Indicator of Stability

Market cap is the total value of all shares of a company. In the crypto market, it refers to the total value of all mined tokens.

The calculation is straightforward: Market Cap = Current Token Price × Circulating Supply

Market cap can serve as a rough indicator of an asset’s stability. It’s worth noting that even the highest market cap crypto, Bitcoin (current price $88,750, circulating supply about 19.96 million, market cap $1.772 trillion), is subject to fluctuations. But just like a large ship is more resistant to waves than a small boat, high market cap cryptocurrencies are generally more stable than low market cap assets.

Lower market cap digital assets are more susceptible to market volatility—they can skyrocket or plummet. Market cap is a commonly used financial indicator because it reflects the amount of capital flowing into the network. It also facilitates comparison of market rankings across different projects.

The rule is: the higher the market cap, the more stable the project; lower market cap coins often have higher growth potential.

The Hidden Impact of Liquidity and Trading Volume

Liquidity refers to how easily an asset can be converted into cash in the financial markets. In crypto, liquidity manifests as how easily a coin can be exchanged for fiat or other tokens. All tradable assets require sufficient liquidity—cryptocurrencies are no exception.

Low liquidity indicates insufficient market activity. Conversely, high liquidity results in a stable market, smaller price swings, and lower investment risk. More market participants mean faster execution of buy and sell orders in a liquid crypto market.

24-hour trading volume is a very intuitive indicator—it shows how frequently a specific cryptocurrency is traded within a day. When the price rises along with increased trading volume, the upward trend is usually more sustainable. Conversely, price swings with low trading volume may be fleeting. High trading volume reflects market health, boosts investor confidence, and indicates active buying and selling activity.

The Pitfalls of Circulating Supply and Supply Mechanisms

Circulating supply refers to the total number of a specific digital asset currently traded in the market. Unlike total supply, circulating supply changes as the project releases more tokens.

Understanding circulating supply is crucial—it helps you avoid “price bias,” where people buy simply because the token price is low. Currently, Bitcoin’s circulating supply is about 19.96 million (max supply 21 million), with approximately 3.7 million tokens permanently out of circulation, including 1.1 million held by Satoshi Nakamoto.

Note that exact circulating supply data can sometimes be hard to determine—it’s difficult to distinguish between tokens held by long-term holders, tokens that are permanently burned, or lost.

On-Chain Data Analysis: Extracting Information from the Blockchain

Cryptocurrencies are the first asset class capable of extracting investor activity from vast amounts of public data—every blockchain records all historical transactions. Blockchain is an open, tamper-proof treasure trove of financial data. When collected and analyzed, it helps us gauge market sentiment and investor behavior.

On-chain analysis relies on real data rather than hype or market noise. It can be used to compare different crypto assets to identify key market caps or to study the historical trends of a single asset.

The actual value of Bitcoin and similar cryptocurrencies can be divided into speculative value and utility value. The beauty of on-chain analysis is that it can distinguish between these two—by examining user adoption rates and miner activity, it helps assess whether the project’s fundamentals support its current price.

Data Sources and Tools for On-Chain Metrics

Extracting information manually from raw blockchain databases is time-consuming and laborious. Fortunately, various API tools can help investors make smarter decisions. For example, analyzing Bitcoin’s on-chain data via CoinMarketCap provides abundant information.

Key indicators include hash rate, network status, active addresses, transaction value, and transaction fees.

Hash Rate: A Barometer of Network Computing Power

Hash rate measures the total computational power of a proof-of-work (PoW) blockchain network. It also reflects how quickly miners’ equipment can perform calculations.

A higher hash rate makes a 51% attack more difficult. An increasing hash rate often indicates rising miner interest—usually due to decreasing costs or increasing rewards. Conversely, a declining hash rate suggests miners are leaving because mining becomes unprofitable (miner capitulation).

The current price of the asset, the number of processed transactions, and transaction fees all influence overall mining costs. Direct costs like electricity and hardware also need to be considered.

Active Addresses: A True Reflection of Network Engagement

Active addresses refer to blockchain addresses that have been involved in activity within a specific period. There are various calculation methods. A common approach is to count the number of sender and receiver addresses within a set cycle (day/week/month). Another method is to track the total number of unique addresses over time. You can also count unique addresses within a specific period and compare.

Transaction Volume and Fees: Economics of Market Activity

Consistently high transaction volume indicates active circulation of the digital currency. Transaction fees can be likened to bidding in an auction—users compete for priority processing. Ethereum’s gas fee is a typical example, but each crypto has its own fee mechanism.

Higher bids lead to faster confirmation (mining), while lower bids mean longer waits. Additionally, PoW blockchains offer block rewards, sometimes including block subsidies and transaction fees.

Major events like Bitcoin halving reduce block subsidies. Mining costs tend to rise, and subsidies decrease over time, so transaction fees must increase—otherwise, miners will lose money and leave the network, jeopardizing security.

Project Metrics: The Art of Qualitative Evaluation

Project metrics use qualitative methods, focusing on internal and external factors. Fundamental analysts study whitepapers, team backgrounds, competitive landscape, and product roadmaps.

Team Strength and Track Record

Legendary investor Warren Buffett once said that the team behind a project and their experience are key considerations because the success or failure of a project often depends on the team.

Like publicly listed companies, crypto projects usually publish team information on their official websites. Therefore, in-depth analysis of team members’ backgrounds is crucial for predicting token success. After research, ask yourself:

• Do team members have successful precedents in this field?
• Do their skills and experience enable them to achieve set goals?
• How is the developer community without team support?
• Are they involved in suspicious projects or scams?

Code commits and development activity on GitHub should be fully documented to help you understand the execution team’s capabilities. The frequency of updates in the project’s code repository is also important—ongoing activity is more attractive than a repository with no updates for years.

Whitepaper: The Soul of the Project

The whitepaper is a key document every potential investor must read—it reveals the project’s core goals and technical foundation. Every coin has a whitepaper containing all project information: historical performance data and related intelligence.

A good whitepaper helps the project stand out. Besides informational value, it lends legitimacy and professionalism. High-quality whitepapers attract attention, while poor ones repel. Whitepapers typically clearly state “who, what, when, why”—that is, why investors should choose this project over others.

Bitcoin’s whitepaper remains the clearest example to date. Satoshi Nakamoto (the pseudonym of Bitcoin’s creator) published it in 2008, describing the concept that led to Bitcoin and kicking off the decentralized finance revolution.

Competitive Benchmarking

In crypto fundamental analysis, benchmarking involves identifying competitors and understanding their strengths and weaknesses relative to your target project. This helps you decide how to outperform competitors and adjust strategies.

A certain crypto may seem attractive at first glance, but after benchmarking, its true potential becomes clear.

Product Roadmap: Promises for the Future

A roadmap is a strategic planning tool that defines a project’s short-term and long-term goals within a flexible expected timeframe. Most crypto projects have roadmaps showing timelines for testnets, launches, and feature updates.

Within the team, the roadmap serves as a strategic vision, providing developers with clear goals and product delivery stages. It should clearly indicate future directions and prioritize tasks based on the final product structure.

The roadmap helps investors understand the project’s direction and vision, making it easier to evaluate the speed of development and results. We can use the roadmap to track progress and make more rational investment decisions.

Deep Dive into Crypto Market Data

Market Size and Token Distribution

Based on the latest data, the current status of mainstream crypto assets is as follows:

Bitcoin: Price $88,750, circulating supply 19.9673 million, max supply 21 million, market cap $1.772 trillion, 24h trading volume $864 million

Ethereum: Price $2,970, circulating supply about 120.7 million, market cap $358.68 billion, 24h trading volume $439 million

Dogecoin: Circulating supply about 152.342 billion, market cap $19.16 billion

Litecoin: Circulating supply about 76.6648 million, market cap $59.3 million

Bitcoin Cash: Circulating supply about 19.9721 million, market cap $12.13 billion

Bitcoin SV: Circulating supply about 19.9659 million, market cap $367 million

These data reflect the market positioning and investor confidence levels of different assets.

Summary and Action Guide

The digital economy is expanding rapidly, with new information emerging constantly. Conducting solid fundamental analysis is crucial—it provides deep insights that technical analysis alone cannot offer.

Learning to distinguish between the current market price and the network’s “true value” is a trading advantage. While technical analysis is key (helping determine entry and exit points), fundamental analysis can forecast long-term price trends. Many traders now combine both approaches.

These simple financial indicators can quickly reveal the overall picture of any project. We hope this article helps you grasp the fundamental analysis elements to consider before entering or exiting crypto positions. Before making any major investment decision, spend more time researching and let data, not emotions, guide your choices.