Any kind of investment should be preceded by an analysis. But cryptocurrencies are still a young asset class, so beginners in particular have difficulties applying the appropriate criteria. There is no doubt that crypto analysis can be complicated to the extreme. For starters, however, an understanding of the basic criteria that should not be missing in any analysis is sufficient.
Fundamental analysis in cryptocurrencies
The fundamental analysis is actually known from the stock market and pursues a clear idea. It is based on the assumption that a cryptocurrency (or a company) has an intrinsic value. The reference is made to the fact that cryptocurrencies have a real use case in the future. While fundamental analysis dares to give a comprehensive picture of the value of a cryptocurrency, technical analysis takes historical prices and chart indicators into account. In this article, the focus is on fundamental analysis – but a more technical approach is also promising and should be considered in addition.
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1. Distribution & Tokenomics
Whether it’s presale or an established altcoin, looking at distribution and tokenomics is important. Because in the case of a crypto presale, the planned distribution can be quickly analyzed with tokenomics. Here the developers and those responsible should not be too heavily involved in the project, but a small participation can still encourage continuous development of the project. The total supply should be limited so that the investors’ capital is not continuously diluted. At the same time, on-chain data shows whether crypto whales dominate and pose a risk in token distribution, or whether there is a relatively balanced distribution.
Basically, a middle ground is always recommended. When crypto whales are interested in a coin, it indicates future potential. If only a few crypto whales hold the coins, this poses the risk of massive sell-offs, which private investors lose out on.
2. Concept at micro and macro level
The concept of a cryptocurrency is the foundation for long-term success. The exception proves the rule when we think of the Dogecoin. The idea and vision behind a cryptocurrency can be analyzed in the team’s remarks, the white paper or on the website.
A multi-perspective approach that includes the macro and micro levels is recommended.
The micro level is about a unique selling point of the cryptocurrency. Is the concept convincing on its own? Does the token make sense in its own network and does the coin have a certain utility from which an increasing value could feed?
At the macro level, investors are looking beyond the crypto horizon and questioning real-world deployment. For example, can Bitcoin enable cross-border payments worldwide with the Lightning network? Is there already massive competition here or does BTC seem to be the best concept?
3. Team & Developer
The team is not always known. With Bitcoin, it is still unclear who is behind the pseudonym Satoshi Nakamoto. But for most coins, the team is known and developer activity can be measured in the on-chain data. Without the right people behind the cryptocurrency, sustainable success becomes more difficult. Key team members should be scrutinized, their experience in the crypto space examined. In this regard, coins cannot be distinguished from startups. The leading persons are decisive for the development.
4. Marketing & Community
In the case of technically influenced cryptocurrencies, the developers often rely on the use case and any unique selling points of a technical nature, which should be convincing in the long term. But marketing is an important part of cryptocurrencies. Awareness has to be gradually increased in order to ensure a positive share price development. Ergo, you should look at which platforms are reporting on the cryptocurrency. Are influencers promoting the cryptocurrency or are there online marketing campaigns? The community is actually a separate point for a crypto analysis – but the growth of the community often corresponds to the success of marketing. In addition to the number of followers, engagement in social networks is also important.
5. Technological conception
Even if you are not a home-grown crypto expert or IT specialist, no analysis should be without a look at the technological design of a cryptocurrency. This is, for example, about the consensus mechanism on which the blockchain is based. The block rewards or difficulty should also be included. The white paper is always a good starting point for getting initial information about the technology.
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Who does not know her? The almost immeasurable amount of data that we are being inundated with in the digital age. The search for the right information is a challenge, especially when you consider that according to data from CoinMarketCap, there are now over 22,000 cryptos and coins. Recourse to advanced analysis tools is recommended in order to carry out really well-founded analyzes and to make trading decisions professionally.
But in the past there were mostly offers with Glassnode Enterprise or Bloomberg that are not affordable for the private trader. At the same time, many competing platforms only analyze a specific niche – the new next-level platform Dash 2 Trade takes a comprehensive approach and can add massive value to cryptocurrency analysis in the future.
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