What is fundamental analysis (FA)?

Fundamental analysis is a method for determining the value of financial assets. A fundamental analyst studies both economic and financial factors to determine whether the value of an asset is fair and appropriate. This can include macroeconomic conditions, such as the state of the broader economy, industry conditions, or business conditions connected to that asset (if there is one). They are often tracked by leading and lagging indicators across the macroeconomy.

Once fundamental analysis is completed, analysts aim to determine whether an asset is undervalued or overvalued. Investors can use this score when making their investment decisions.

In the case of cryptocurrencies, fundamental analysis may also include an emerging field of data science concerned with public  blockchain data called on-chain metrics. These metrics can include the hash rate of the network, the first owners of the coins, and the number of wallet addresses, transaction analysis, and much more. Using the abundance of data available on public blockchains, analysts can create complex technical indicators that measure certain aspects of the overall health of the network.

Although fundamental analysis is widely used in the stock market or Forex, it is less suitable for cryptocurrencies in its current state. This asset class is so new that there is simply no uniform, comprehensive framework for determining market valuations. Furthermore, most of the market is driven by speculation and narratives. Thus, fundamental factors usually have minimal effects on the price of digital currency. However, more nuanced ways of thinking about valuing digital assets can be developed once the market matures.