Fundamental Analysis for Crypto Futures Trading
Amateurs would rather believe that investment and trading are driven by intuition, however, at the base of this seemingly intuitive decision-making is the expertise of knowing the fundamentals of a trade or an investment. Fundamental analysis deals with a closer look at the core of the factors that influence the price of a crypto asset. In layman’s terms, crypto fundamental analysis takes the proverbial peek behind the curtain to reveal the mechanisms at work that result in a crypto asset that is a profitable or loss-making investment or trade.
The Need for Fundamental Analysis in Crypto Futures Trading
The need for such crypto fundamental analysis arose due to the emergence of countless entities offering crypto assets. With the variables going higher up, the volatility of such assets is immensely affected by factors that are not visible to the average trader and investor. Herein comes the need to turn an expert eye to the operation and distinguish the relevant factors from the irrelevant ones. In this blog, we will break down the necessary factors that will help you learn the basics of conducting your crypto fundamental analysis and make better-informed decisions while making trades and investments.
Distinguishing Fundamentals from Technicals
For starters, let us first understand the difference between the two kinds of crypto analysis, i.e., fundamental and technical.
Fundamental analysis is based on the study of factors such as the project, the team, community support, and stakeholder relationships of the entity that is offering a given crypto asset. On the other hand, technical analysis is concerned purely with the study of statistical data rooted in history to have a better understanding of the future trends of crypto assets.
The point of the biggest difference between the two methods is that, while fundamental analysis answers the question, of why is a crypto asset performing well, the technical analysis focuses on when. The technical analysis draws a timeline in real time to help you ascertain when is the best time to enter and exit a crypto investment or trading opportunity.
Key Areas of Fundamental Analysis for Crypto Futures
We shall now uncover the ingredients of conducting a crypto fundamental analysis, the what and why of the factors that matter.
Project Analysis
Every entity in the world of crypto asset offerings tends to develop white papers detailing the vision and mission of their technology. The questions to ask oneself while going through this document are, whether this technology solves a real problem and whether the same is a feasible solution or not. Further, another document that is publicly made available is a roadmap, wherein the entity details the steps and timelines of the project to give you information regarding the steps they are taking to achieve their goals. A good measure of a strong asset is to check whether the entity is adhering to the timeline set by them, that is, whether they are sticking to the initial plans formulated by them or are lagging on their promises.
The analysis of a project additionally involves looking at the team that has been onboarded by the entity. Their qualifications, previous experiences as well as accomplishments offer great insights into how well a project could be run. Lastly, as an investor, you should also look into the real-world uses of the project that is being developed. Not just that, one needs to ensure that the project is scalable, secure, and innovative enough to sustain the period of bare hype and become a strong asset in the long run.
Market Analysis
Next up on our list of factors to look into, is market analysis. As the term suggests, this involves a look into the factors influencing the market dynamics and how a crypto asset ranks against its competitors. To break down this part, one needs to understand the following key concepts:
1. Demand and adoption rates: An investor must measure the current as well as the future demand of a given crypto asset. Looking at the rate of adoption of the asset as well as the volume of transactions is an integral aspect of this. Further, one can look into the demand of the project that is being developed by the entity.
2. Competition analysis: For this, one needs to look into the competitive edge that is being offered by the project as well as how others in the same sphere are faring currently. Considering factors such as technology, use case, and user base is important to get to a rational conclusion.
3. Regulatory environment: How the government or authority of various jurisdictions perceive and regulate the crypto assets and projects is of utmost importance to gauge the success of a project. Stringent regulations that don’t allow for much innovation often lead to suffocation and untimely closure of projects. Regularly updating oneself with the necessary knowledge in the arena could be a good method to stay on top of this aspect.
Community Analysis
The community and the ecosystem that has bolstered the growth of a crypto asset and project are vital signifiers for both health and growth prospects. Here are certain elements to consider:
1. Community engagement and sentiment: In most cases, a large, active community would be an indicator of high interest and engagement. To ascertain this, check what is the general sentiment in the community; are its members positive, and supportive, or are they generally negative and skeptical? Community sentiment is often a principal factor in determining whether people will join in and support a crypto asset or not. Check for the community channels to know how active they are: forums, social media, and blogs are good places to start. Another factor would be to see whether the developers are interacting with the community.
2. Partnerships and collaborations: A cryptocurrency can benefit from its partnerships that often lead towards growth and adoption. Check the companies and organizations with which the project has collaborated with. Further, assess the impact of these partnerships. Are they with well-built and reputable entities? One should also consider the importance of the goals set by the project. Do they align with the roadmap and objectives shared by the entity?
Knowing the community dynamics and the nature of partnerships can help understand the potential of a cryptocurrency for success and long-term sustainability.
Macroeconomic Factors
Macroeconomics is of key importance to a project’s viability and future success. Let’s look into the aspects to be considered:
1. Tokenomics: This concept essentially decentralizes the economics of the token. Good questions to ask oneself are, how is the supply managed? Is there a cap on the total number of tokens, or is it inflationary? Understanding the distribution strategy of the tokens is imperative.
Next, ask who holds them, and how are the assets distributed among the developers, the company, and the public. The distribution impacts the token’s value and potential for manipulation. Assess the mechanisms of inflation or deflation. Does the token have a burning mechanism, or is there a staking system that can impact the supply?
2. Funding and financial health: Check how the funding is provided for the project. Does it have solid backing from reliable investors or organizations? Initial sources of funding can indicate the credibility and faith that savvy investors have in its potential. Look at the streams of revenue for a given project. How does it plan to generate income? What’s the model for financial sustainability? If a project lacks a clear path towards revenue, it will most likely flop in the long run. Analysis of these economic factors gives a view of the token’s long-term viability and helps one to decide whether it is a smart investment.
How Fundamental Analysis Helps in Futures Trading
While trading in crypto, fundamental analysis plays an integral role in one’s decision-making. It helps you make informed decisions while basing them on cogent facts that are backed by the information made available to you. Overly relying on market trends, hoping that things might get better, and bringing overnight gains to investors, might have disastrous consequences. This is where fundamental analysis comes in. Fundamental analysis will offer you a deeper look into the cryptocurrency’s technology, team, demand, and real-world potential. Understanding these core factors helps you to make an educated investment decision.