Preamble
When embarking on the investment path, in any market, analysis is indispensable. Analysis helps make judgments and brings confidence to your investment.
In the traditional financial market there are two main types of analysis: Fundamental Analysis and Technical Analysis, with cryptocurrency having a third form called On-chain Analysis.
Fundamental Analysis: Is the activity of analyzing the basic elements of the project and the external environment (products, team, tokenomics, competitors, business environment...) to help Investors determine the intrinsic value of the project.
Technical Analysis: Analysts assume that all factors are reflected in the price, so this type mainly relies on graphs and technical tools to determine the next trend of the price line. .
On-chain analysis: This is a unique feature of cryptocurrency that cannot be duplicated with other financial markets. Blockchain helps make everything transparent, including token circulation. Therefore, a new type of analysis was born: On-chain Analysis. Analysts rely on on-chain indicators to predict the next price behavior.
Each type of analysis has its own advantages and disadvantages. In this article, we will delve deeper into the first type, Fundamental Analysis.
What is basic analysis of crypto projects?
Fundamental analysis in general and in the cryptocurrency field in particular is the activity of analyzing the basic elements of a project with the aim of determining the intrinsic value and development potential.
Intrinsic value refers to the true value of the project based on existing fundamentals instead of the market value, it is used to see if the project is overvalued or undervalued.
Fundamental factors (or foundational factors) include but are not limited to: People, products, technology, investors, operating model, financial indicators, development stage, tokenomics, business philosophy, community, market context, competitors...
We will take a closer look at each factor in the following sections.
Advantages of fundamental analysis
Fundamental analysis helps you determine the actual value of the project and its development potential in the current market context. From there, it gives you solid confidence to "diamond hand" or skip the project. If you don't understand the project, don't know what your investment is for, just a small FUD will cause you to be immediately caught up in a sell-off.
Fundamental analysis gives investors a long-term perspective. Because the basic elements of the project are not easy to change overnight like the price line.
Disadvantages of fundamental analysis
Fundamental analysis requires the analyst to have a broad and solid knowledge base, including macro, micro, and technological knowledge if they want to provide an accurate assessment result.
Therefore, unlike price indexes and on-chain indices with the formula 1+1=2, the results of fundamental analysis are heavily influenced by the individual analyst.
Additionally, in the crypto market fundamental information can also be limited and not always accurate. Because the information published by the project has hardly been verified by any competent organization.
Basic analysis steps for crypto projects
In this section we will learn in detail each basic element that needs to be analyzed of a crypto project. These factors are the highlights that need to be evaluated, but you can also analyze many other factors.
Regarding the direction of analysis, you can choose to go from the inside to the outside, or from the outside to the inside. But it's best to go from macro to micro, so you will have a view from general to detail.
Macro situation (economic, political, social) > Industry (blockchain & crypto) > Ecosystem > Functional groups > Projects.
Analyze internal factors
Vision & Positioning
For many people, this is a rather theoretical criterion, but in large projects, determining vision and brand positioning is absolutely necessary for long-term development. It is the guideline for all operations over a period of many years.
• Vision is a multi-year future image of what the project wants to become. It is a statement of goals and future direction.
You can find information about the project's Mission and vision at the Whitepaper or the project's official portal.
For example, Ethereum's vision is to build a decentralized, flexible and powerful blockchain platform that provides infrastructure for building decentralized applications. The goal is to create a decentralized internet system where people can interact, build, and exchange value without third-party intervention.
• Positioning is how the project wants customers to perceive them. Positioning is the activity of building your position in the minds of target customers, helping them differentiate the project itself from competitors.
For example: Solana's positioning is a decentralized blockchain platform with high performance and fast speed. Because of this positioning, Solana accepts the trade-off of decentralization and security in exchange for speed in the impossible trinity, thereby gaining a competitive advantage over Ethereum in the Layer 1 battle.
A good locator can only be designed by a team that understands technology and understands the market. A project with a good positioning system will be a solid foundation for the next steps.
Development team
The development team is an extremely important factor that must be carefully studied. Whether a project succeeds or fails comes from the team behind it, because they are the ones who build and breathe life into the product. A strong team is a team with full members covering all important positions (management, technology, communications, finance...), in which each individual is experienced in the field. the area they manage and also in cryptocurrency.
You can find information about the project development team through social networking channels such as LinkedIn and Twitter.
Some projects follow the direction of teams anonymizing real-life information (only publishing social network accounts) or completely anonymizing. Anyway, this is also a characteristic of the cryptocurrency market, many anonymous projects have had strong development such as PancakeSwap or Bitcoin.
This lack of information is a minus point, but that doesn't mean we should ignore it. Let's combine it with other facts to make the final decision.
Investor & MM
In recent years, the saying "swim with the sharks" or "follow the big investment funds" has become popular in the crypto world. Swimming with a large budget is a good method, but it also has its own advantages and disadvantages that you need to understand before each swimming trip.
• First, a project funded by an investment fund has passed through a layer of filter. The "better" the investment fund is, the better the quality of that filter layer. Therefore, you can feel "somewhat" more secure if a project receives investment from many large funds.
On the contrary, you also need to know that accepting to invest in a project with a fund means that from a certain perspective you are becoming liquidity for the fund. The price that investment funds buy will certainly be many times cheaper than the price you can buy. This is because the funds not only support the project financially but also in communication, relationship connection, branding, and strategic consulting.
Pay attention to your position compared to other participants in the project to set profit expectations and calculate appropriate timing.
• Second, not all funds are "good". There are many types of investment funds, there are investment funds that commit to going long distances and support projects, but there are also investment funds that just wait for the token to be unlocked and then release it.
Still knowing that profit is the ultimate goal whether an individual investor or a fund, but for long-distance funds they accept burying capital to harvest big profits in the future, while short-distance funds just wait to pay tokens. create fomo to discharge. So, you need to know which funds are long-term and which are short-term. Even knowing that, it's still difficult, because for each project they will determine investment within a different time frame, you need to further research the product and tokenomics to evaluate further.
• Third, more investors is not always better. The idiom "5 people, 10 ideas" is probably the most suitable to describe this argument. The more parties involved, the more difficult it becomes to be consistent in operations. However, it must be added that the "many" here is a lot in terms of voting rights, not in the form of a few funds contributing with a small amount of investment value mainly for the purpose of media cooperation.
• Fourth, do not put all your trust in large funds. Alameda Research, FTX Ventures, Three Arrow Capital are certainly no strangers to us. Don't put too much faith in any one entity in the crypto market, because the most stable empires can still collapse overnight.
• And finally, hedge funds are not always right. Funds still have to allocate their investment portfolios across many different projects and categories. Not every project with the presence of large funds has good growth.
Product
Product is the next important factor that must be researched. With this criterion we need to answer the questions:
• What is the project trying to do? What problem does the product solve?
• Does the problem really need to be solved?
• Is the problem the project is trying to solve a short-term, medium-term or long-term trend?
• Have any other projects approached this issue? If so, what is different or superior about the products the project provides?
• Continue to delve deeper into the product by researching the operating model to know how it operates, the participating components, then combine it with the current technology platform and business environment to evaluate feasibility. of project?
In general, after the product research process, it is necessary to draw out: practicality, applicability, feasibility, novelty and trend.
This requires you to have extensive knowledge of both the market and technology in the field of blockchain and cryptocurrency.
Development roadmap / Roadmap
This criterion indicates whether the project is a “talker” or a “doer”. It also reflects the flexibility/consistency of the leaders.
Although not every project has a detailed roadmap available to read, you can still find out through social updates, blogs or through the founders' accounts.
A project with a clear development roadmap that is continuously followed is a good sign, showing that the team is steadfast with the vision. If a project has a constantly changing roadmap but the product update schedule is still closely followed, that is not necessarily a bad sign. The change shows that the project is still working and wants to change to adapt to market conditions.
In response to the two arguments above, the steadfastness and flexibility to adapt that the project implements need to be further examined to ensure that the steadfastness or changes are for what purpose and are they appropriate? with the market situation or not. If the project keeps trying to follow the trend and forgets its long-term core values, it shouldn't be done at all.
Economic Modeling / Tokenomics
Here I want to use Economic Model instead of Tokenomics to imply a broader meaning. In this section, you need to understand how the internal project economy operates. Participating components, roles, rights, sanctions of each component, interaction between components in the economic model.
Next, we will study the characteristics of tokenomics such as:
Token allocation
Token utility
Release schedule
Deflation mechanism
The most difficult thing in this section is not finding information about the economic model but understanding the intentions of the designer of this economic model.
Why are these components charged during operation? Why is the token payment schedule for each component after one year or two years and not the TGE (Token Generation Event) token?
Only the project team knows the exact intention behind, but with experience and close monitoring of the market, you can still partly guess the intention behind that design.
Performance indicators
For projects that have been put into operation, there will be performance indicators showing operational efficiency. If in the traditional environment we have Financial Reports, Business Activity Reports and a series of other reports, in crypto we have related indicators such as:
Market Cap and FDV (Fully diluted market cap) represent project scale
Volume, Transactions: represent the excitement of the project in the market
TVL - Total value locked: The total value locked in DeFi protocols represents trust in the project.
Fee, Revenue: Evaluate the level of performance of the economic model
Forks: The number of times the protocol has been forked represents the stability and efficiency of the protocol.
Github Commit: Shows the level of activity of the development team,
You can find these parameters at statistical websites such as Coinmarketcap, Coingecko, Defillama, I will put detailed links in the tools section below.
Through these reviews, you will understand the project's operating status. From there, there is a basis to combine other criteria for the final judgment.
Community
As I mentioned in another article about NFT project analysis, the community is in some ways the source of potential customers for the project. A large, loyal community means a rich source of potential customers, and business operations also become more efficient. Good products, good backers without customers, the project will die.
Become a member and observe how people interact with each other, check to see if the community is "real", try to FUD the project to see if members speak up to protect it.
A good community needs to ensure both quality and quantity, but also needs to be evaluated flexibly based on the development stage of the project.
Other factors
The project's professionalism is also reflected through media publications (Website, Document, Twitter Page, Blog...). Through these small details, one can see the sophistication and meticulousness of the development team for their beloved child.
It is still necessary to reiterate about flexibility, all research needs to be compared to the scale, capacity and development stage of the project.
In the next section below we will learn about external factors.
Analyze external factors
If studying internal factors helps us understand the project and team capabilities, studying external factors helps us understand the project's suitability in the market context.
Market context
To evaluate whether the project solution provided is practical, applicable or trendy, researching the market context will give you the answer.
The market is always moving, especially with cryptocurrency, the speed is many times faster than other markets. A solution is new today but a few months from now may have been superseded. You need to understand the entire crypto market structure, the pieces inside it. Determine which pieces are short-term, medium-term and long-term. Predict what the next market trends "might" be. From there, pour your investment into the right place. In addition, the macro market context also tells you whether or not you should invest in the current economic situation.
I have a series of detailed articles including 4 topics about predicting the next trends of the cryptocurrency market:
LSDfi - The economy revolves around liquid staking tokens
Part 2: Layer 2 Wars - The war between extension solutions and between projects within each solution
Part 3: SocialFi - Will it become the future of social networks?
Phần 4: Real World Asset (RWA) - The end game of the cryptocurrency market.
You can read the above articles on your Binance Square personal page.
Ecosystem - Functional group
The purpose of this research criteria is to help you understand three things:
Pieces of the puzzle in the ecosystem
Mechanism of action and importance of each functional group
Featured projects in each group
From there, determine the project's position in the ecosystem, whether that position is important or not, and whether there is much competition or not.
Competitors
In this section, you need to delve into each project's competitors to determine whether the differentiating points the project offers are useful or not. Will it bring a competitive advantage to the project when it comes into operation? Is the positioning proposed by the project appropriate?
Concluded
After all the above research and more individually, you can make an assessment about the potential of the project, whether the current valuation of the project is higher or lower than the actual value. . Or project the actual value when that token is listed if not yet listed.
Finally, combine with other analysis methods to come up with an investment strategy: yes, no, short-term, medium-term or long-term.
Tools to support basic analysis
List of some tools to support basic analysis activities:
Tin tức & Research: Coin68, Messari, GoDeFi Substack.
Project information: Project communication channels, Crunchbase, LinkedIn.
Performance index: Coinmarketcap, Coingecko, Defillama, Dune, Token Terminal.
Conclude
Fundamental analysis is a job that requires meticulousness, experience and constantly updated information. Hopefully through this article you can grasp the basic knowledge to continue developing your own set of processes and tools.
