Fundamental analysis will reveal if an investment is worthy of long-term capital allocation, while technical analysis will assist with the timing of buys and sells.
Look at intrinsic value drivers of an asset. E.g. with stocks, evaluating operating health via examining:
Sell-side research for cryptoassets is non-existant/nascent. Onus is on the innovative crypto investor to do his/her own research.
Fundamental analysis for cryptoassets is different from that of stocks because cryptoassets are not necessarily companies. The asset may have been created by a company, and an understanding of that company is vital, but the cryptoassets themselves should be valued more as commodities, with markets priced by the balance of supply and demand.
Fundamental analysis for a cryptoasset performed via examining its:
"Vagueness is not your friend". If a white paper lacks specificity...avoid the asset.
Investors should feel comfortable briefly explaining the asset in some manner to a friend who may or may not be knowledgeable on the subject. If the investor can't do that, it may be appropriatee to consider a different cryptoasset.
When reading the white paper, the first question to ask is: What problem does it solve? In other words, is there a reason for this cryptoasset and its associated architecture to exist in a decentralized manner?...does this one have an inherent benefit to being provisioned in a distributed, secure, and egalitarian manner? We call this the decentralization edge. Put bluntly by Vitalik Buterin, "Projects really should make sure they have good answers for 'why use a blockchain.'
Broadly, there are two kinds of value that the community places on any kind of cryptoasset: utility value and speculative value.
Utility refers to the use of the cryptoasset to gain access to the digital resource its architecture provisions and is dictated by supply and demand characteristics. For Bitcoin, its utility is that it can safely, quickly, and efficiently transfer value to anyone, anywhere in the world.
Future utility value can be thought of as speculative value.
However, at a certain point some investors may choose to exit their investments because they feel that bitcoin has reached its maximum value. In other words, those investors no longer feel bitcoin has any speculative value left, and instead its price is only supported by current utility value.
To calculate if maximum value has been reached, two concepts need to be explored: velocity of money and discounting.
The velocity of money is the frequency at which one unit of currency is used to purchase domestically-produced goods and services within a given time period...it is the number of times one dollar is spent to buy goods and services per unit of time.
velocity of money = GDP for time period / total money supply
For example, if GDP is $20 trillion and money supply is $5 trillion, then velocity is 4. Currently, the velocity of the USD is a little north of 5.
The global remittances market — granting actors the ability to send money to one another internationally — is a graspable example use case of bitcoin.
$500 billion is transmitted annually through thte remittances market. Assuming BTC serviced the entire market, then to figure out the value of BTC, one would need to assume its velocity.
total remittance market = 500 billion
assumed velocity of BTC = 5
BTC supply = 21 million
value of a BTC = (500 billion / 5) / 21 million = $4,762
This is an overly simplistic model, BTC would not service the entire remittance market. There needs to be an assumtion to the % BTC services in the remittance market. Another market BTC would have a use case, is the investable gold market. With these additive use cases for BTC, valuation is found from adding together their respective market valuations.
The next concept necessary for determining the present value of one bitcoin is discounting future values back to the present.
Discounting is simply the reverse of accruing interest.
Example: $100 yielding 5% annually, means in 1 year you'll have $105 and in 2 years, $110.25, because you earn 5% on $105. Therefor you either want $100 now or $110.25 in 2 yrs — both are worth the same to you.
Analysts use the discounting method to figure how much they should pay for something now if it is expected to be worth more in the future.
It is easy to manipulate models to show an asset is under or overe valued, but these models are nonetheless useful to give investors some bearing on what they are paying for.