What is fundamental analysis in crypto trading? 3 important key figures explained

Before investing in crypto, you need to conduct fundamental analysis to get a fuller picture of what is happening on a blockchain network.

You need to know how to conduct technical and fundamental analysis to be successful as a crypto investor. While the technical analysis tools and methods used in crypto trading are similar to those used in forex, stocks and many other markets, the variables used in fundamental analysis are very different.


So what do you need to consider when conducting fundamental analysis of a crypto project?

What is fundamental analysis?

Fundamental analysis is an analytical method used in the financial markets to assess the intrinsic value of an asset. It takes into account various internal and external factors that can affect an asset’s price to determine if an asset is over or undervalued.

Unlike technical analysis, which looks at past data to predict future events, fundamental analysis is more of a holistic approach, considering information such as the crypto user community, finances, real-world application, and future use.

Using Ethereum as an example, most decentralized finance (DeFi) applications run on the Ethereum blockchain. If you believe that DeFi has a future, then this may indicate that Ethereum’s value will increase over time.

The framework for fundamental crypto analysis

The short-term volatility and tremendous long-term growth of the crypto market has made fundamental analysis very important. Thousands of crypto projects have failed in the market and new projects are also being launched making the market dynamic. In-depth knowledge of crypto basics will help you determine the value of a token before investing.

The framework for basic cryptanalysis uses three key metrics: Onchain, Project, and Financial.

1. On-Chain Metrics

Crypto platforms have systems that make it easy to get blockchain data and network information. These systems help you avoid the rather daunting task of manually obtaining such information. First, let’s quickly review some key on-chain metrics of cryptos.

Transaction Value and Fees

A currency in constant circulation has a consistently high transaction value. Comparing circulation rates over time provides enough data to predict future market movements.

Many blockchains have transaction fees. Fees also reflect the requirements of transactions to be added to blockchains as soon as possible, just like the gas fees paid on the Ethereum blockchain. Accessing information about fees gives you an idea of ​​how secure a token is. As transaction fees rise and block rewards fall, crypto miners will operate at a loss and withdraw from the blockchain.

Active address

Active addresses are addresses currently in use on a blockchain. To calculate this, you need to count the numbers of both the sender and receiver of transactions over specific periods of time. You can also track the number of unique addresses over time and compare the results to gauge activity and interest in a crypto. Cryptocurrencies that attract more interest have higher potential.

Hash rate and amount wagered

The two most popular cryptocurrency consensus algorithms are Proof of Work and Proof of Stake. Both Bitcoin and Ethereum use proof-of-work, which uses hash rate to measure network health. A high hash rate signals a more secure and difficult-to-bridge system. However, if the hash rate drops, crypto mining activity could also slow down, especially if miners deem it unprofitable. A lower hash rate lowers investor interest in the crypto asset.

For a cryptocurrency that uses a proof-of-stake system, transaction validators stake their holdings in the block validation process. The amount staked at any given time could also indicate how much interest a crypto asset is attracting.

2. Project Metrics

Using project metrics is a qualitative way to determine how well a cryptocurrency project is performing. In this section, we will look at other aspects of cryptocurrency, such as its purpose and how it works.

White paper

You must read a project’s white paper before investing in it. The whitepaper is a technical document that gives you a detailed insight into the project. This document contains the project goals, how these goals can be achieved, use cases, delivery quantities, the technology used and many other useful information. So when people say “do your own research” before investing, reading the white paper is just one of the things they’re talking about.

The team

The team of employees working on the project inspires confidence among customers and financiers. Information about team members, their experience, expertise, and public profiles can help you gauge their credibility.

Tokenomics and Use Cases

The value and price of cryptocurrencies is determined by supply and demand in the market. The price will increase in proportion to supply and demand. The incentive structure used to incite behavior in a network is also a component of tokenomics.

The functions that a token can perform also determine its value. There is a chance that a coin that has more use cases in the real world will attract more users and attention. Irrelevant tokenomics and the lack of a properly specified cryptocurrency use case are red flags.

3. Financial metrics

These metrics concern the flow of money in the crypto market. Market capitalization, liquidity, volume and other related information are useful tools in fundamental analysis.

market capitalization

The total number of tokens in circulation multiplied by their current price gives the market capitalization. A network’s worth is indicated by its market cap value; You can use this metric to find out how old a project is and what growth potential it has.


The ease with which an asset can be traded is a measure of its liquidity. A cryptocurrency asset’s liquidity is strong when it can be bought or sold quickly without changing its market value. There will be many buyers and sellers in an order book for a cryptocurrency coin or easy-to-trade token.


A token’s trading volume indicates how well it will hold its value over time. This indicator shows how many individual units of an asset were traded within the period under consideration. An uptrend with high trading volume will most likely last longer than one with low trading volume.

Don’t just focus on fundamental analysis

Fundamental analysis gives you a broader picture of what is happening in the crypto markets. This gives you information that will help you distinguish valuable tokens from those with little potential. However, using it as a standalone analysis method is not the best.

As with the stock and forex markets, relying solely on fundamental analysis will limit you. You need to build a robust strategy that combines fundamental and technical analysis. This allows you to identify coins with potential and allows you to time your trade entries and exits well.

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