In general, there are two ways to trade in crypto when deciding whether something is a good purchase or not. And both of these methods have their own unique purpose. In this article we discuss the Fundamental Analysis in crypto trading and what it is used for.
Fundamental Analysis in Crypto
Ideally, every trader should know basic technical analysis. The more one knows the better. However, there are countless successful traders who don’t know any technical analysis. These traders are usually very strong with what’s called fundamental analysis. Fundamental analysis is the process of researching a company based on their value proposition. Of course, this method isn’t an exact science, and a lot of it comes down to speculation. Most fundamental analysis is based on opinion. But this doesn’t discount the purpose of the process at all.
In general, fundamental analysis is used to determine how much adoption a company is going to receive from both retail and institutional investors. There are certain factors that play a key role here. There are easy and hard parts of fundamental analysis. Easy fundamental analysis include things like examining basic news such as partnerships, and company updates like, for example, if the blockchain company becomes a launchpad for other tokens. Also, it’s important to see how the investors receive news from the company and if they are satisfied with the progress of the company.
Fundamental analysis can become a rabbit hole of sorts, however. An expert at fundamental analysis is a cryptocurrency/blockchain expert. They know much about the history of the industry and the technology in the blockchain world. This helps them to understand whether a certain company will fill a niche in the cryptocurrency industry that is much needed. When someone discovers something special about what a certain project is doing, this helps them to predict the likelihood of the company’s widespread adoption.
For those who are newer to the blockchain and crypto fields, following experts and reading about their analysis can make things easier. However, it’s important not to be swayed through bias.
Technical Analysis in Crypto
Technical Analysis is a complex topic and requires in depth studies of tools and chart patterns. Unlike fundamental analysis, technical analysis is fully based on reading charts. Technical analysis means to find patterns in charts that will help you create a trading strategy.
Both fundamental and technical analysis are important skills for people who invest in crypto. No matter how much one knows, knowing a little more never hurts. But this is the basics of understanding fundamental analysis versus technical analysis in crypto. A quote from an Investopedia.com article says:
“Fundamental analysis helps analysts select which stocks to trade, while technical analysis tells them when to trade it.”
This article is not financial advice. Please buy/hold cryptocurrency at your own risk.
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Aaron is passionate about blockchain and has been an investor in cryptocurrencies for the past years. He enjoys engaging with other people in the cryptocurrency community online, particularly on Telegram, and learning from experts.