A View of Fundamental Analysis on Cryptocurrency

Hello, today I am going to share a view of fundamental analysis on cryptocurrency. I am a longterm investor on cryptocurrency, majority of my decisions are based on fundamental analysis.

1. Fundamental Analysis

   First, we need to understand what fundamental analysis is. According to investopedia.com, fundamental analysis is a method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors.

   So, what is intrinsic value?

   Intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business. So, intrinsic value is actual value.

   We need to pay attention, because this concept is a perception, it could be subjective.

   How can it be subjective?

   So, we already knew that fundamental is the result of examining qualitative and quantitative factors. The qualitative factors are business model, management, and competition (all of this could be subjective). The quantitative factors are analysis on financial statement such as revenues, expenses, growth rates.

   Practically, fundamental analysis is complicated. For the next we’ll discuss about the debate on the use of fundamental analysis on cryptocurrency.

2. The Debate on The Use of Fundamental Analysis

   Bjordal and Opdahl (2017) stated that there are difficulties to uncovering the fundamental value in cryptocurrencies. Cryptocurrency does not have financial statement because cryptocurrency is not corporations.

   Moreover, Bjordal and Opdahl suggest that technical approach can possibly work better than a fundamental approach in the cryptocurrency market.

   That is correct in some condition, but is not entirely correct. Yes, technical is important, but fundamental also has a role.

   In the debate on the use of fundamental or technical, Zucchi said technical and fundamental analyses do not have to be used alone but can be used together to draw a complete investment picture.

   Zucchi took an example of investor that believe that genetically modified seeds are the future of farming, than he/she will probably invest in a relevant company—Monsanto, for example—and are willing to stay the course despite any short-term noise the stock may experience.

   So, fundamental is not only about analyzing financial statement but also believe in the trend, or we could say the technology (if we want to invest in cryptocurrency). And yes, analyzing financial statement is irrelevant with crypto world, that is why there must be any other fundamental thing that we can relate to. And also yes, predicting the trend is not as easy as we think.

   Torpey explained that believing in bitcoin (which is represents crypto as a whole) is the spirit of ‘hodler’.

   “The hodlers are here to stay, and they’re not leaving. They’re the strong hands that do not sell when the price collapses by 25% in a single day or 50% over the course of a month. In fact, they buy the dips.” Kyle Topery

   Torpery agree on the theory;

   " The basic idea is that the bitcoin price in terms of U.S. dollars or any other fiat currency will be determined by the willingness of holders to pull bitcoin out of circulation more than anything else".

   That is also could be the fundamental valuation metric that determines other crypto too. You can see the paper of the theory here.

   Now we are moving to Kelleher. Kelleher write that intrinsic value of bitcoin could be US$ 10.8 trillion US.

   If bitcoin were to achieve 15% of global value of mediums of exchange and stores of value, its market capitalization in today's money would be 10.8 trillion US dollars. With 21 million bitcoin in circulation, that would put the price of 1 bitcoin at $514,000.

   My point on his statement is, his analysis using global value of mediums of exchange and stores of value could be one of the tool in predicting not only bitcoin but all crypto value. Coincheckup is using this method in the first place to predict the price of any cryptocurrency.

   Last but not least, Lee on cnbc.com shares his view on predicting the price using Metcalfe’s law. Metcalfe's law proposes that the value of a network is proportional to the square of the number of users on the network. Bearman, studies have shown that Metcalfe's law holds true for Facebook using 10 years of data.

   It also holds true for Tencent, China's largest social media company.
   The Metcalfe’s Law proposed that value will increases exponentially as other people get to the network.

   Yes, we are in the same page, this metcalfe’s law is also important to understand if we believe that majority of people will adopt cryptocurrency.

   There’s always people that disagree with fundamental and probably said bitcoin and crypto as a whole have no value and have no fundamental basic.

   But, we have already discussed it and yes cryptocurrency has a value. Maybe we will see it in a couple years ahead when the infrastructure is established, the adoption is getting faster and the value will increase. At this time of writing, the value is only US$ 256 billion.

   So, the conclusion is, we can use fundamental analysis on cryptocurrency. There’s even more theory on this even more complicated. As time went by, more theoris on fundamental analysis will emerge.

   Note :

   A view on fundamental analysis have not been completed. Actually, I want to provide a practical form using fundamental analysis, because cryptoin is a fundamental analysis believer.

   Well, the practical form of using fundamental analysis is also not simple but not as complicated as you imagine, therefore, cryptoin will explain it in the next post.

   We are sorry if there is a mistake. We need your insight. Thank you.