Investment Strategies in Cryptocurrency: Fundamental Analysis

Wednesday December 12, 2018

Many new investors in the crypto market wonder which investment strategy is the best. Like other trading markets, the s has its fair share of strategies that allow traders to maximize their returns. The kind of approach that a particular individual uses though can vary. The cryptocurrency market is a new market that has only been around for a few years. The market might, therefore, prove to be confusing for most investors. But what are the main methods which individuals and institutions are using to find success? Let us look at some key strategies that investors can exploit.

Types of Analysis

When talking about analysis in the trade markets, you will generally find two kinds – fundamental and technical analysis. Our focus will be on the fundamental analysis which focuses on calculating the value of an asset using tangible and intangible data. This is different

from the technical analysis which relies on arriving at the value by the use of price and trade data. Most investors in the markets are torn between these two strategies which both attempt to get the value of assets. The two methods also tend to play a huge role when analyzing day trading vs swing trading. It is thus not exactly possible to say that either of the two methods is better than the other. What is clear though is that application of either differs in significant ways.

Understanding Fundamental Analysis

As mentioned, fundamental analysis is all about getting the intrinsic value of an asset. Various measures are used to arrive at this value and the most important factors are financial and economic in nature. Other kinds of qualitative or quantitative issues can be considered though because the main goal is to arrive at a concrete value. Indeed, fundamental analysis is arguably all about the core basics in the investment industry. Some successful investors have used this method exclusively to determine the value of assets and to make huge amounts of money.

For some of the most successful investors, the fundamental analysis provides them with the best data to work with. Company financials and records that detail the performance of the organization are important sources of information for fundamental analysts. By looking at profit margins, losses, debts and how cash is used in a company, investors can be able to get a clear idea of the future of the company. Well-known investors like Warren Buffet have used this kind of analysis to turn companies into great successes.

Stock Price is Also Considered

While the intrinsic value of an asset is the most important aspect of fundamental analysis, stock prices are also often considered. This is because the stock price is a great measure of earnings. The kind of ratios that fundamental analysts are able to derive from stock prices allow them to make accurate comparisons between various assets. Simple information like stock price can be enough to enable an investor to look across different industries and sectors. Since comparisons are at the core of fundamental analysis, any little figure that comes up in the markets is important for decision-making.

Other Factors Considered

In addition to stock price, other minor issues like industry outlook, equity analyst ratings, and a couple of other information bits are also considered important tools for investors. The goal of any fundamental analyst is to get the closest figure to the actual value of assets. Bits and pieces of information that could be useful are therefore never ignored.

Trading Strategies

Having looked at the factors considered in the fundamental analysis, it is time to look at the trading strategies used in the market. For investors, there are only two ways of making money – selling or buying. For this reason, the two strategies used to trade are:

  • Buy and hold
  • Buy the dip

Buy and hold involves investing in the long-term. Investors make cryptocurrency purchases in the hope that they will appreciate over time. They thus hold on to the assets for as long as they can until the price is right. For this strategy to work, proper identification of good buying points is needed.

Buy the dip involves the assumption that cryptocurrency value will go higher in the future. Investors, therefore, make purchases immediately the value of the cryptocurrency dips. The hope for investors is to make profits in the long-run as long as the market goes as expected.

In overall, fundamental analysis is all about manipulating the intrinsic values of crypto assets. By using different metrics to measure this value, investors are able to make worthwhile investments.