What is Fundamental Analysis?
Fundamental analysis is an analysis method used to measure the value of a financial asset by considering all macro and micro factors that have the potential to affect its value. In fundamental analysis, elements that can show a general picture such as the conditions of a cryptocurrency, the developments in cryptocurrency projects, the economic situation of the country or the world, inflation or interest policies are examined. Thus, it is aimed to predict which direction a financial asset will go in the future and to make investments accordingly. If you’re wondering what fundamental analysis is, then you will find the answer in this article.
How does fundamental analysis work?
Fundamental analysis is generally used by investors aiming for medium or long-term investments. It is based on the determination of the true value of a cryptocurrency asset. True value is also expressed by the concept of “intrinsic value”.
There are some qualitative and quantitative methods of determining true value. To analyze a cryptocurrency asset, information about that cryptocurrency must be collected. It is a useful element for fundamental analysis to look at the general picture of the cryptocurrency asset, as instantaneous loss or gains in cryptocurrencies do not constitute sufficient data for fundamental analysis.
Fundamental analysis methods
Some fundamental analysis methods can be listed as earnings per share (EPC), price to earnings ratio, and network value trading volume (NVT) ratio. Earnings per share is obtained by dividing a company’s profits by the total number of shares outstanding. A company with a high earnings-per-share ratio can be seen as an investment point for investors using fundamental analysis. The price-earnings ratio is calculated by dividing the earnings per share by the number of earnings per share. In this way, information can be obtained about whether a company is more expensive or cheaper than its value.
One of the fundamental analysis methods in cryptocurrencies is the network value transaction volume. It is obtained by dividing the market value of a cryptocurrency by its daily trading volume. Network value trading volume is seen as one of the elements that show the intrinsic value of a cryptocurrency asset.
What is the difference between fundamental analysis and technical analysis?
In fundamental analysis, macro elements such as local and global financial conditions, political factors, developments in the project of the relevant cryptocurrency are used. In technical analysis, numerical indicators such as price movements or volume changes in the chart of a cryptocurrency or other financial asset are used. Based on historical data, predictions are made about the future movements of the graph.
Another important difference between fundamental and technical analysis is that fundamental analysis is used by investors who want to make medium and long-term decisions, while technical analysis is used by investors who aim to make shorter-term decisions.
