Fundamental Crypto Analysis, Indicators, Metrics and Tools
[TL; DR]
Fundamental analysis equips traders and investors with knowledge that guide them to make informed investment decisions.
Market value to realized value (MVRV), Network Value to Transactions (NVT) ratio and the Stock-to-Flow ratio are key fundamental crypto indicators.
BaseRank, Crypto Fees, Glassnode Studio, Coinigy, TradingView, Cryptowatch, CoinMarketCal, Coin Metrics and CryptoView.ch are examples of cryptocurrency analysis tools that traders should use.
The main reason why traders should use top crypto analysis tools and metrics is to understand the cryptocurrency market behavior that affects price volatility.
Introduction
People who invest in cryptocurrencies and other digital assets should analyze how these securities perform on the market. Most crypto projects provide ample information to their users through their whitepapers, communities and websites which enables investors to make informed investment decisions. The investors often use both quantitative and qualitative methods to uate the potential of the cryptocurrencies. In this guide, we explain how investors can use fundamental analysis to uate cryptocurrencies.
What is fundamental analysis?
Fundamental analysis is a process of uating the intrinsic value of a cryptocurrency with the aim of establishing if it is overvalued or undervalued. In other words, it is a method used to identify the true worthiness of an asset. It involves the analysis of both the internal and external factors that influence the price of an asset.
The crypto uators use cryptocurrency analysis tools to determine the true value of these digital assets. The best crypto technical analysis tools to use, in this case, include Market Value to Realized Value (MVRV), Network Value Transaction (NVT) and the stock-to Flow ratio. These on-chain metrics gauge the market sentiment of a cryptocurrency.
Key fundamental analysis (FA) indicators
As mentioned, crypto fundamental analysts use cryptocurrency analysis tools to analyze these digital assets. These indicators enable us to understand the market behaviour of the cryptocurrencies before we buy them. Let’s discuss the Market Value to Realized Value (MVRV), Network Value Transaction (NVT) and the stock-to Flow ratio in detail.
Market value to realized value (MVRV)
The market value to realized value refers to the ratio of the market capitalization of a cryptocurrency to its realized value. We calculate an asset’s market capitalization by multiplying its total circulating supply by its current market price.
On the other hand, we calculate the realized value by multiplying each coin by its price when it was last moved. Moreover, it is easy to use the appropriate technology such as Bitcoin‘s UTXO technology to calculate the realized value. This realized value, also called realized capitalization, is a better measure of the value of a cryptocurrency than its market capitalization since it uses the real price of every coin at the time it was moved.
MVRV = Market Capitalization / Realized Capitalization
If the MVRV is above 1 it means that the cryptocurrency is overvalued.
If the MVRV is below 1 it means that the cryptocurrency is undervalued.
In general terms, if the value of MVRV is high, the current market price is more than the value of the cryptocurrency at the time the investors purchased it, which indicates that in the near future the investors may sell off the token or coin with the prospect of realizing a profit. Conversely, if the value of MVRV is low, it means that the investors may hold on to the coin waiting for its value to rise.
Network Value to Transactions (NVT) ratio
Definitely, the Network Value to Transactions (NVT) ratio is one of the indicators for crypto trading. This on-chain analysis tool is similar to the price ratio (P/E) when dealing with stocks in the traditional finance sector.
We obtain the Network Value to Transactions (NVT) ratio by dividing an asset’s market capitalization by its daily trading volume which reflects the cryptocurrency’s inherent value. This metric has various implications for traders and other investors.
For instance, if the price of a cryptocurrency is rising without the backing of its trading volume, it may get into bubble territory. In broad terms, a price buble is likely to occur if the value of the NTV ratio is in the region of 90-95 or above. This is because its price is increasing without a change in its underlying value.
If the price stays stable, yet the trading volume is increasing, that is a reliable buying signal. A low NVT ratio indicates that the asset is undervalued, thereby showing a bearish momentum. On the other hand, a constant NVT ratio shows a balance between the change in the asset’s growth and its transfer volume.
Stock-to-Flow ratio
The stock-to-Flow ratio is the other top crypto analysis tool which helps traders to understand how to read cryptocurrency prices. However, this is an indicator used for cryptocurrencies with limited supply such as Bitcoin. It views such cryptocurrencies as fixed scarce resources similar to precious minerals like gold and diamond.
The stock-to-Flow ratio shows how the new supply of an asset changes over a given period such as a year and indicates the length of time it would take to produce its current circulating supply.
Bitcoin is a typical example of a cryptocurrency with a fixed supply of 21 million. We calculate the stock-to-Flow ratio by dividing its circulating supply by the total amount produced within a year. For Bitcoin, we can use the quantity of newly mined coins to calculate its yearly production. Essentially, we use the following formula to calculate the stock-to-Flow ratio of Bitcoin.
Let’s use Bitcoin’s estimated circulating supply of 19,000, 000 and its yearly emission of about 328,500.
Therefore, Bitcoin’s S2F= 19,000,000/328,500 = 57.84
A high value shows that the commodity is very scarce. For instance, the S2F value of Bitcoin shows that with its current production rate it would take 57.84 years to produce 19,000,000 BTC.
However, Bitcoin will not have a constant stock-to-ratio because of its halving event which occurs after the miners add 21,000 BTC to the blockchain. Generally, this BTC halving event takes place after about 4 years. Due to the halving event, analysts predict that the 21 millionth BTC will be produced in 2140.
examples of fundamental analysis tools
Instead of manually calculating the key fundamental analysis indicators, we can use some websites that publish them. The best websites for fundamental analysis include Baserank, Glassnode Studio, Coinigy, CoinMarketCal, Coin Metrics, Cryptovew.ch and TradingView.
BaseRank: BaseRank is one of the greatest sources of guide to investing in cryptocurrency as it aggregates statistics and reviews from investors and experts in the crypto space. It provides information on teams, investment risks and the utility of the asset. Also, it gives the cryptocurrencies ranking scores of between 0 and 100 which guide investors when making their investment decisions.
Crypto Fees: This website provides an overview of transaction fees of different cryptocurrencies for the previous 24 hours and 7 days. As we know, a network’s gas fee is a clear indication of the demand of a cryptocurrency. A relative high transaction fee shows that the asset is in high demand.
Glassnode Studio: Most traders and investors use Glassnode Studio because it aggregates essential data from various sources which include transaction and mining data, wallet holdings and price information. Therefore, it enables its users to access multiple types of analysis and use it to make trading and investment decisions.
Glassnode products- Glassnode
Coinigy: With Coinigy, you can utilize the API of different exchanges to create a single interface which combines different wallets and exchange accounts. As such, you can integrate more than 40 cryptocurrency trading platforms, including exchanges. As well, it helps you to trade on various trading platforms and use cryptocurrency graph analysis.
Trading View: Although traders can make paid subions, they can also access free crypto chart indicators. Apart from benefiting from graphs, the investors can get real market updates and other features. There is room for traders and other investors to chat in forums and watch live streams from experts and analysts. Generally, its community helps others to master key trading skills and knowledge.
Cryptowat.ch: The investors can get market information which includes trading charts from over 24 main exchanges. Likewise, it aggregates data from more than 4,000 web based markets.
CoinMarketCal: Investors should have clues on what to know before investing in cryptocurrency. For instance, they should be aware of trending news that affects the prices of cryptocurrencies. This is where CoinMarketCal comes in. It supplies its users with essential news and information that help them to make important trading decisions. The users also comment on some of this information.
CoinMarketCal products- Coincloak
Coin Metrics: This is an on-chain and off-chain crypto analysis tool that enables researchers and analysts to understand the behaviour of the crypto market. Some of its features support visualization of trends. It also has different metrics and indexes that show market updates and trends.
CryptoView.ch: The main role of CryptoView is to show crypto holdings that are on crypto exchanges, in cold storage locations and third party digital wallets. It provides quantitative and qualitative data from many exchanges which assists the investors to know the latest developments in the sector.
Conclusion
Traders and investors should understand fundamentals of trading and how to read crypto prices in order to invest in profitable blockchain based projects and cryptocurrencies. On top of that, there are many cryptocurrency analysis tools and indicators for crypto trading which investors can use to acquire basic and advanced knowledge related to investment.
FAQs about fundamental analysis
What things should I know before buying a cryptocurrency?
There are several things an investor should know before investing in a cryptocurrency. For instance, one should read and understand the whitepaper, uate the social media channels, check its reputation and study its price history. It is also important to analyze its performance using various metrics such as market capitalization, trading volume and supply.
Which are the best indicators for crypto trading?
A trader should use a mix of technical analysis indicators to uate the price performance of a cryptocurrency. The most popular indicators include moving averages, trading volume, stochastic oscillator, Relative strength Index (RSI) and Bollinger Bands. One should combine both lagging indicators and leading ones to make reliable price predictions.
Which are the best websites to use when doing fundamental analysis?
There are many websites that aggregate data from various sources which we can use to make informed decisions. The top best websites for fundamental analysis include BaseRank, Crypto Fees, Glassnode Studio, Coinigy, TradingView, Cryptowatch, CoinMarketCal, Coin Metrics and CryptoView.ch. To get the best information one has to use most of these websites since they provide different data, presented in various forms including charts and graphs.
What does cryptocurrency look like?
Cryptocurrency refers to a digital asset which is secured using cryptography. It is impossible for people to double spend it or create its counterfeit. We can use it as an alternative means of payment since it is possible to transfer it safely to other people. Bitcoin was the first cryptocurrency and it is the number one coin, based on market capitalization. The other popular cryptocurrencies are ETH, Tether USDT, Binance Coin (BNB), Cardano, TRON and XRP.
What problems do cryptocurrencies have?
The major problem which most cryptocurrencies have is price volatility. Usually, the price of a cryptocurrency can fall and rise sharply within a short period. People can also lose their cryptocurrencies through hacking or loss of private keys and seed phrases.
