Altcoin fundamental analysis involves looking at and evaluating all available information on an altcoin. It involves looking at the cryptocurrency’s use cases and its network, as well as the team behind the project, to fully understand and evaluate the best altcoins to buy.
When analyzing altcoins, or any cryptocurrency for that matter, the goal is to understand whether the asset in question is overvalued or undervalued. Overvalued assets should be avoided, whereas undervalued assets are more ideal. This is because overvalued assets will likely underperform and dip back to their real value. Undervalued assets, on the other hand, have more potential for growth and are consistently profitable.
A thorough analysis will help you make the best decision concerning your investment decisions.
Here are some helpful guidelines on how to analyze cryptocurrency before investing:
Step 1: Analyze the whitepaper and find the value proposition
Scrutinizing a token’s whitepaper will provide a lot of relevant information such as its use cases, goals and the team’s vision for the project. The white paper must give you a good picture of how the altcoin will provide value for its users.
The value proposition for Bitcoin, for example, is as follows: “a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on a peer-to-peer network without the need for intermediaries.”
An altcoin’s value proposition can guide you as you continue to analyze other information about it.
Step 2: Look for increasing demand and stable (or decreasing) supply
Looking at supply and demand is one of the best ways to assess your next crypto investment. Now that you’ve gotten a clear picture of how the altcoin adds value to its users, it’s time to look at how it navigates supply and demand.
Simply put, the altcoin should have incentives that will facilitate the increase of demand in such a way that supply is continually decreasing or stable. When demand outpaces supply, prices go up, thereby fueling even more demand.
To do this, you can access resources like Cointelegraph’s Price Indexes and Market News, as well as Coin 360’s Heatmap and CoinMarketCap.
Step 3: Assess the team and stakeholders behind the project
Now that you have a good understanding of what the project can offer, it’s also important to thoroughly assess the team behind the project. You can find information about the team on the project’s white paper, but try to do independent research on them as well. You can check out the official project site’s team page as well as their LinkedIn profiles which they should have made public and accessible to all.
Ask the following questions when looking into each member’s background:
- Have they worked on other reputable and successful projects in the past?
- What are their credentials?
- Are they reputable members of the crypto community and blockchain ecosystem?
The goal is to find if the team behind the project is experienced and composed of experts who know what they are doing. You can look at on-chain analytics platforms and blockchain explorers to supplement your research regarding this. You can also sniff around their social media profiles or check out Twitter for conversations they engage in.
Ethereum, for instance, has such a strong investment community because every individual working on Ethereum creates value for Ethereum holders. Despite issues such as high fees and slow transactions, developers, community builders and other top talents still want to go onboard with Ethereum-related projects.