Many traders in conventional markets (equities, commodities, etc.) achieve success using a fundamental analysis (FA) strategy. In more traditional markets, fundamentals such as dividends and earnings are among the many factors that influence stock prices. Nevertheless, is FA fundamentally valuable for crypto trading, given that the cryptocurrency field is still a developing market?
Fundamental Analysis Works in Traditional Markets Why?
“By understanding a company and its competitive factors, we have a rational basis upon which to assess performance later, ” says professional fund manager Sean Hannon. Traditional markets have access to a wealth of data to make transactions. For instance, the timing and quality of a company’s earnings release can significantly impact stock prices. Numerous other elements, such as the company’s decisions, impact a stock’s price.
Crypto Difficulty
There are several reasons why fundamental analysis is complicated in crypto:
- Buying an altcoin does not give you ownership of any part of the crypto project, so the coin/token value does not necessarily correlate with the project’s performance.
- One cannot calculate the Price-to-Earnings ratio, Projected Earnings Growth, and Return on Equity.
The fact that the cryptocurrency market is nearly totally speculative is probably the most challenging part of applying FA to crypto. Few projects out there have fully functional results. Furthermore, the entire market is still in its infancy, making it extremely difficult to assign a value to crypto firms.
Due to the lack of a relevant historical standard, it is impossible to predict the future worth of any of these initiatives. Additionally, the coins or tokens of many projects are exchanged rather than utilized for their intended objectives.
Crypto FA Application
FA seems to be making an impression on the crypto world in several areas. It looks like a good strategy in cryptocurrency to buy rumors and sell the news. The famous crypto Bobby tweeted about EOS, “Buy the testnet, sell the mainnet.” This has been effective in several cases. Two prime instances are the price movement of Bitcoin in the days preceding the Bitcoin Gold fork and the price movement of Bitcoin in the weeks leading up to Bitcoin futures.
Also, if a trader has a good “feel” for how the market is feeling, it can work. Given the speculative nature of the cryptocurrency markets, some traders excel at capitalizing on shifts in market mood and prevailing market conditions. Regardless, this is trading in its entirety. In any case, the Bitcoin industry has a lot of potential. The evolution of the market is likely to bring about changes to the fundamentals.
