By Roy from CrypteauTrust
Back in time for a moment. It's 2012, you want to buy crypto and have a number of options to choose from:
- Bitcoin;
- Litecoin;
- Namecoin;
- Peercoin;
- Novacoin;
Fast forward to 2023. By now there are a hundred thousand coins you can purchase, and each project presents itself as the new crypto currency of the moment. For this reason, it is not surprising that investors are having more and more trouble analyzing the projects.
Apart from the fact that there are more and more of them, they are often also similar in certain components and it is important for you as an investor to fish out exactly that one unique component to assess what makes project A different from project B.
Table of contents
A project? Or a business?
Once when I started in the crypto space, I was always under the assumption that you should always look at a project that had the most beautiful idea. But, you can put so many great ideas on paper. If the framework conditions of your project are not set up properly, it often remains purely an idea on paper.
Performing fundamental analysis is therefore a crucial step before you actually decide to invest in a project. Not only does this limit your risk by knowing concretely what qualities and pitfalls a project has, but, all in all, it ensures that you know what you are investing in, which is also not entirely unimportant.
Unfortunately, I still encounter it often enough that people simply don't know what they are investing in. In that case, you might as well walk into the Dutch Casino, and at the roulette table put your investment on red or black. It basically amounts to the same thing.
Where do you start?
Look, don't get me wrong. I can well imagine that it is tremendously overwhelming when you start with fundamental analysis, but let's build it step by step. Suppose you invest your money in something (as in a person or a company). What would you like to know first?
Probably who are you investing this money in? Exactly. So, the team is one of the first things you'd like to have insight into. In other words, is the team trackable? If so, what is this team's track record? Do they have experience in the Web3.0 space or are they part-time marketing employees at a local company (no offense to marketing employees). Suppose the team is not trackable, this should actually trigger a ''red flag'' already. Because yes, can you trust it?
Second, what is the goal of the project? Have they published a clear white paper describing what specifically is the goal of the project and how they are going to achieve it. Here it is also important that you ask yourself the question "Is this realistic?". This can be difficult in the beginning, which is why my tip is to make a list of questions for yourself when you start doing a fundamental analysis. And - start practicing. You're going to find that the more often you do this, the more efficiently you'll learn to recognize what are unique components of certain projects, and when to speak of ''yet another crypto Layer 1'' so to speak.
Keep the company in mind
As mentioned, just like a business, there are certain things that are important to know before you decide to invest. So for yourself, fictitiously take a company in mind and try to formulate so many questions. What you will find is that 99% of these questions can also be asked to assess a project in crypto, think about:
- What percentage of the shares belong to Owner A, B and C?
- Does the company have financial "backers" who can provide (additional) funding?
- How is cash flow created within the company? What is their primary business?
These questions can virtually be asked with a cryptoproject as well?
- What percentage of the coins are allocated to the Team (read, the owners)?
- Does the project have financial backers who can finance development and growth?
- How does the project make its money? What is the primary business of the project?
Many hands make light work
Part of the CrypteauTrust Premium community is that we share insights with our members about potential new, interesting and promising projects based on our established framework (read, questionnaire) and the corresponding sources we consult.
In addition, other members also often share fundamental analyses, and it may also happen that after an analysis, a project looks less rosy than it did at first glance. Is that a bad thing? No, certainly not. So that's pre-cies why fundamental analysis is so important before you decide to invest in something.