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Fundamental Analysis (FA)

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What Is Fundamental Analysis (FA)?

Fundamental analysis (FA) is a method used by investors and traders to assess the intrinsic value of an asset. Instead of just looking at the market price, FA dives deep into various economic, financial, and qualitative factors that can influence an asset's value. This method is widely used in traditional financial markets to evaluate stocks, bonds, and commodities, but it has also found its place in the cryptocurrency world.

In the context of cryptocurrencies, FA involves examining elements such as the project's business model, the team behind it, community support, and the overall market potential. For instance, you might look at how a particular cryptocurrency plans to generate revenue, the uniqueness of its technology, and how well it is marketed. The goal is to determine whether the current market price accurately reflects the asset's true value based on these underlying factors.

A crucial part of FA is analyzing the network activity and the project's real-world applications. For example, a cryptocurrency with a strong user base and high transaction volumes might be considered more valuable than one with little activity. By understanding these aspects, investors can make more informed decisions about whether to buy, hold, or sell a particular cryptocurrency.

Another key aspect of FA in cryptocurrencies is evaluating the tokenomics, which includes the supply and demand dynamics of the token. This involves looking at how the tokens are distributed, the incentives for holding and using them, and the sustainability of their emission schedule. By combining these metrics, investors can gauge the long-term viability and potential growth of a cryptocurrency.

Fundamental Analysis vs. Technical Analysis

While fundamental analysis focuses on the intrinsic value of an asset by examining a wide range of factors, technical analysis (TA) takes a different approach. TA looks at historical market data, such as price and volume, to identify patterns and predict future price movements. Essentially, while FA is concerned with the "big picture" and underlying fundamentals, TA is all about market trends and behaviors.

For example, an investor using FA to evaluate a cryptocurrency might look at the project's whitepaper, team credentials, and community engagement. In contrast, an investor using TA would analyze price charts, trading volumes, and market trends to make predictions about future price movements. Both methods have their strengths and can complement each other, providing a more comprehensive view of the market.

Many investors find value in using both FA and TA together. FA helps them understand the long-term potential and real-world applications of a cryptocurrency, while TA assists in timing their trades based on market behavior. By leveraging both approaches, investors can make more balanced and informed decisions.

Learn more: Trading 101: A Guide to Cryptocurrency Fundamental Analysis

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