Analyzing Cryptocurrencies – The Fundamental Approach

At the dawn of the crypto market, when specialists were trying to create a framework for cryptocurrencies and categorizing them as an asset class. As part of the categorization, specialists in economics had to understand and analyze the behavior of crypto assets as a type of market class and approximate it to existing assets and their established fundamental analysis theories.

Analyzing Cryptocurrencies – The Class

Analyzing cryptocurrencies is just as an art as it is process of mathematical sifting, since they are unlike any other asset or commodity that has ever been developed or market fielded. A shining example successful categorization of cryptocurrencies as an asset is the case of Bitcoin itself, which has long been considered an asset class in its own right. The king of cryptocurrencies has been outperforming every other asset in history by its price dynamics. And yet, it has shown to demonstrate behavior similar to the behavior of traditional financial assets, such as currencies on Forex exchanges. However, historical data and in-depth analysis of formulated historical price charts of Bitcoin has proven that the cryptocurrency is more of a commodity than a currency when it comes to its behavior analysis.

Being by virtue highly susceptible to external triggers, like announcements of adoption by major companies, or large inflows of investment from major funds, Bitcoin can be correlated to oil, which is just as susceptible to geopolitical events and reacts violently in price. Bitcoin’s price hikes outstrip those of oil greatly, but the digital currency is as much perceptive of the real, base economic principles that set it aside as a commodity – in essence – an abiding element of classical economics.

Bitcoin is a carrier of intrinsic value, as most coins and stablecoins on the market, and that means that it beats intrinsic value and abides by the laws of supply and demand, since it, as an asset with limited emission, is also scarce.

Cryptocurrency Fundamental Analysis

Intrinsic value can be established by defining the fundamental value of an asset The effort takes into account the various factors affecting the overall valuation of an asset to determine its valuation as high or low.

Cryptocurrencies are also subject to fundamental analysis. But unlike traditional assets that have their value determined through such indicators as price per share or earnings per share, cryptocurrencies have their own set of metrics. Technical analysis has also been adapted to cryptocurrencies by traders, who have established that most digital assets trace the same behavior on market charts as traditional tradable assets, like fiat currencies. This makes it possible to apply such analysis techniques as MACD, Moving Averages, Candlesticks and other indicators to cryptocurrencies.

Cryptocurrency Fundamental Analysis Metrics

The main metrics used for conducting fundamental analysis of digital assets can be divided into on-chain and off-chain sets.

On-chain factors for cryptocurrencies include important numerical factors, essentially, transparent and available for viewing by anyone online. These include such figures as the total number of conducted transactions for a certain cryptocurrency within a timeframe, the total value in all transactions for some period, the total number of users holding the cryptocurrency, the current hash rates and amounts of the asset staked, and, most importantly – the fees paid for said asset.

Commission fees are extremely indicative as clear evidence of demand for some specific cryptocurrency. Supply and demand are the factors determining the price for assets, be it Bitcoin of traditional assets.

Off-chain metrics for a cryptocurrency are reminiscent of the stimulants that can affect the price of oil. For digital assets, off-chain factors are the likes of the wholesomeness and performance of the issuing project, the total inflows of investments, positive news backgrounds, major update or partnership announcements, adoption rates, and others.

The Financial Metrics

The financial indicators of a cryptocurrency are just as critical, which include total market capitalization, its liquidity and trading volumes, and the total available supplies. The combination of these metrics illustrates the fundamental value that a cryptocurrency bears and allows investors to assess whether their object of analysis is performing well, or poorly.


Metrics, fundamental or technical analysis separately is not capable of acting as reliable proof of a digital asset’s performance, just as with traditional assets. The combination of financial performance over time with the internal and external factors create an overall image of a digital asset and give investors clear guidelines on whether an asset is worth investing in – in conjunction with their own intuition and experience.

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