Fundamental and Technical Analysis in the Crypto Market

In the crypto market, there are two important actors: traders and investors. These groups extend beyond individuals, with institutional traders and investors being equally active players in the crypto space. As traders or investors, should we rely on fundamental or technical analysis for crypto projects?
Market participants in the crypto space should conduct more in-depth analyses of such projects through fundamental or technical analysis.

Fundamental Analysis:
Traditionally, fundamental analysts focus on a asset's value by examining financial statements, including income statements, balance sheets, and cash flow statements. In the crypto industry, where many projects are privately held or operate as Decentralized Autonomous Organizations (DAOs), fundamental analysis in this context would consider the following parameters:

1. Market Cap: Calculated by multiplying a crypto project's price by its circulating supply, a high market cap is assumed to indicate a healthy project less susceptible to market manipulation by whales or pump-and-dump schemes.
2. Liquidity: The ease of buying and selling any cryptocurrency is crucial. The distribution on the buy-sell side of any currency, reflected in the bid-ask spread, indicates its liquidity. A lower spread generally signifies higher liquidity.
3. Tokenomics: Encompassing the circulation supply, allocation, and monetary policy of any cryptocurrency, excessive circulation supply suggests a lack of depth in the cryptocurrency, making it easily tradable.
4. Price/Earnings Ratio (P/E): Expressed as a percentage, the P/E ratio signifies how much the market is willing to pay for each dollar generated by the company. It helps identify if a coin is overbought or oversold. Another way to assess this is by calculating the Network Value to Transactions ratio (NVT).
5. NVT Ratio = Market Cap of Chain Transactions over 24 hours / Transaction Volume.
6. A low NVT ratio is a good indicator that the cryptocurrency is not overvalued.
7. Project Team: The founders or management team of any crypto project significantly influences its progress in the sector. For instance, Ethereum's success can be attributed to brilliant developers like Vitalik Buterin, Gavin Wood, and Charles Hoskinson.
8. Utility of the Cryptocurrency: The ability for those holding a project's coins to use them for various products within the network is essential. The utility should be clear; otherwise, the cryptocurrency becomes just another speculative asset.
9. Community Size: In the crypto market, the size of the community is a crucial measure for fundamental analysis. A large community generally implies that the project addresses significant issues for a broad audience, facilitating higher demand and creating a network effect.

These fundamental analysis parameters help assess the long-term performance of a crypto project.

Technical Analysis:
Technical analysts typically focus on price and volume data, attempting to determine the market's next move by examining historical price movements. Technical analysis involves careful scrutiny of price charts covering different intervals such as minutes, hours, days, and months.
Analysts often use support levels, acting as a base below the current price range, and resistance levels, serving as a ceiling above it. For example, if Bitcoin's price fluctuated between $53,000 and $57,000, $53,000 would be the support and $57,000 the resistance. A cryptocurrency's price falling below support signals a potential decline, while rising above resistance indicates an upward trend.
Many technical analysts employ indicators like moving averages, Bollinger Bands, and MACD to gain more insights and make better predictions about a price.
Compared to fundamental analysis, technical analysis requires a bit more expertise. A fundamental rule here is that longer trends tend to produce more reliable results than shorter ones. Consequently, determining prices with technical analysis can sometimes lead to misleading positions in the short term.

Should I Use Fundamental and Technical Analysis?
Fundamental and technical analysis attempt to predict price movements using different approaches. The difference lies in the fact that fundamental analysis in crypto can consider non-monetary parameters such as the team behind a project, the utility of the cryptocurrency, and the size of the community, while technical analysis solely focuses on the historical price movements of cryptocurrencies.
While fundamental analysis considers a longer-term perspective, technical analysis looks at relatively shorter-term trends. As mentioned earlier, most crypto investors fall into two categories: traders and investors. Traders often opt for very short-term trading intervals, such as hourly, daily, or weekly, while investors evaluate crypto with a long-term outlook. Regardless of your preferred analysis method, both have their advantages and disadvantages.