cryptocurrency: fundamental evaluation: to determine the true value of the tokens
The world of cryptocurrencies has been along the way since its creation in 2009. From Bitcoin to Ethereum, and from Altcoins to Stablecoins, the landscape is constantly evolving as new players emerge and that existing adapts to changing market conditions. However, in the midst of all excitement and speculation surrounding these digital assets, fundamental evaluation remains a crucial aspect of investment in cryptocurrencies.
What is fundamental evaluation?
The fundamental evaluation refers to the process of estimating the value of a cryptocurrency according to its underlying economic principles, its commercial fundamentals and its market analyzes. Unlike technical analysis, which focuses on trends and models, the fundamental evaluation considers all the relevant factors that can have an impact on the price of a cryptocurrency.
Why is fundamental evaluation important?
- Understanding the feeling of the market : By analyzing the fundamental aspects of a cryptocurrency, investors can assess the feeling of the market, by identifying the potential areas of the conditions of occurrence or oversight.
- Identify investment opportunities : fundamental evaluation helps to identify the undervalued cryptocurrencies with strong growth potential, while warning against the encryption which can be due to a correction.
- Protect against speculation : By understanding the underlying fundamentals, investors can make more informed decisions and avoid investments focused on speculation which can cause significant losses.
Key factors to consider
- Trade model : Sources of income, profitability and scalability of a cryptocurrency are crucial factors to determine its value. For example, a decentralized exchange (DEX) like Uniswap can be more precious than a traditional centralized exchange.
- Capitalization Market : The total market capitalization of a cryptocurrency can give an overview of its request and its potential supply. Large market capitalization may indicate a high demand for particular token.
- Adoption rate
: The adoption rate of a cryptocurrency in various industries, such as finance, games or health care, can have an impact on its value by providing a clear use case for assets.
- Regulatory environment : Changes in regulatory environments can have a significant impact on the value of a cryptocurrency, either positively or negative.
- Network effects : cryptocurrencies with strong network effects, where users are more likely to hold and participate in the ecosystem, tend to increase value over time.
Examples of successful fundamental evaluation
- Bitcoin : Despite its volatility, bitcoin is often considered a stable reserve because of its limited supply (21 million), its generalized adoption (more than 50% of world transactions) and strong network effects.
- Ethereum : As the largest intelligent contract platform, the fundamental evaluation of Ethereum is driven by its growing ecosystem, its scalability improvements and its growing adoption in the DEFI space.
- Cardano : With a strong emphasis on the scalability, security and adoption of developers, the fundamental evaluation of Cardano has increased regularly over time.
Challenges in the fundamental evaluation
- Lack of transparency : Cryptocurrencies often lack transparent financial statements or verified accounts, which makes it difficult to assess their value.
- Urumous marketing : Some cryptocurrencies are strongly marketed with affirmations or exaggerated promises which may not be supported by reality.
- Speculative markets : The cryptocurrency market is known for its speculative nature, where prices can be motivated by the media rather than a fundamental analysis.
Conclusion
Fundamental evaluation is a crucial aspect of investment in cryptocurrencies, offering investors a clear understanding of the underlying economic principles and the fundamentals of companies that stimulate the value of a particular asset.
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