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A Guide to Cryptocurrency Fundamental Analysis

Fundamebtal Analysis Cryptocurrency - Olymp Trade Official Blog

The decentralized nature of the digital asset market makes the information about cryptocurrencies different from other market sectors. Analyzing it is different, too. 


Interact with the dashed blue word and green spot on images to get additional details and explanations.

Crypto Market Fundamental Analysis

On the one hand, blockchain transactions are transparent. That means, if you see a figure related to a cryptocurrency, the probability that is somehow manipulated is relatively low. Generally, that ensures the factual reliability of blockchain data.

On the other hand, the decentralized nature of blockchain complicates analysis in a number of ways.

First, the crypto market is not an integrated global system with structured information flow and planned events. Rather, there are private firms that exchange cryptocurrencies. Therefore, there are no economic calendars that you may be used to analyzing and planning your trades.

Second, cryptocurrency exchanges provide no regular reviews or performance reports like the earnings reports released by public companies in the earnings season. Therefore, with cryptocurrencies, you will hardly find a piece of well-structured information with clear financial indicators like P/E or EPS in stocks.

Yet, there are ways to analyze Bitcoin, Ethererum, Litecoin, or other altcoins. So, how to do fundamental analysis of cryptocurrency? You can use various metrics and indicators to do it. Here are some suggestions.

Cryptocurrencies’ Financial Metrics

Market Capitalization

Market capitalization is the primary metric of a cryptocurrency in the market.

Cryptocurrencies by Market Capitalization - Olymp Trade - Blog - 20.05.2022
Fig. 1. Top-5 cryptocurrencies by market capitalization

Big market capitalization may indicate high demand for a cryptocurrency.

This metric can be useful to forecast a cryptocurrency’s potential price growth. For example, if you expect a cryptocurrency related project to become a leader of the industry, and you know the market cap of the current leaders, you can guess the level to which the analyzed token might grow.

When comparing projects, make sure you do it to those with a similar tokenomic model. This is important because sometimes a project team decides to burn tokens or something else that affects cryptocurrency.

Liquidity and Volume

Liquidity shows how quickly and easily a cryptocurrency may be bought or sold.

Cryptocurrencies that are in high demand usually have tight spreads because of high liquidity, and that is a good indicator.

Cryptocurrencies of low liquidity usually have large spreads, and that is generally not a good sign of reliable value.

Ethereum Trading Volume - Olymp Trade - Blog - 20.05.2022
Fig. 2. Ethereum trading volume

Low volumes are usually a bad fundamental indicator and red alert to traders.

High volume can indicate a fundamentally strong cryptocurrency.

If both liquidity and volume of a cryptocurrency are low, it can mean that the project in question doesn’t have partnerships with the market makers. Also, it may indicate that the coin price can be easily manipulated.

Additionally, pay attention to the quantity and quality of CEX and DEX on which the asset is traded. Top cryptocurrency exchanges make a detailed check on a project before listing them.

Blockchain Metrics (On-chain Metrics)

Hash Rate and Active Addresses

With certain cryptocurrencies, blockchains use the PoW consensus algorithm. With these, the current hash rate is a useful metric.

The higher the hash rate, the more reliable the blockchain and the lower the probability of a 51% attack.

The lower the hash rate, the less the blockchain reliability of the cryptocurrency in question.

51% Attack Cost on Various Blockchains - Olymp Trade - Blog - 20.05.2022
Fig. 3. 51% attack cost on various blockchains

With most cryptocurrencies, you need to track the number of active addresses of the blockchain during a certain period.

Growing number of active addresses is a feature of a fundamentally strong cryptocurrency.

If the number of active addresses doesn’t grow, it means the project’s business doesn’t expand and offers a dull outlook.

Total Value Locked (TVL)

You can assess the potential of a project or network with Total Value Locked (TVL). This metric shows the value of all cryptocurrency assets that are on the protocol and is usually expressed in USD.

The growth of this metric indicates that more users trust their crypto assets to the project team.

In the opposite scenario, this indicates that users are reluctant to trust the project’s team and use its coin.

TVL is particularly useful in assessing Decentralized Finance projects (DeFi).

DeFI Market TVL - Olymp Trade - Blog - 20.05.2022
Fig. 4. DeFI market TVL

Qualitative Project Metrics

Project’s Whitepaper

A serious project with promising potential has its idea clearly presented in the project’s whitepaper. If it makes sense and convincingly explains why it should be implemented with blockchain technology in stages and details, its coin may be worth looking at.

Project’s Team and Partnerships

A reliable project’s team should ideally be known to the public and accessible for communication. Usually, it includes competent specialists and advisors known in the industry. If the team holds Ask Me Anything (AMA) sessions and communicates with the audience in person, that’s a good indicator.

Partnerships are also an important indicator. Good partnerships suggest proper business development, expected industry demand for the project, and its usefulness to the industry participants.

Competitors and Target market

Often, the project’s whitepaper provides comparative analysis in relation to the project’s competitors. If the team manages to explain what and why they are planning to do better than their rivals, that’s a good sign.

Social Media Channels

When deciding on an investment in a cryptocurrency, fund managers often check the social media activity around the project in question and its coin.

The more discussions around a coin, the faster people will know about its project’s development and start using it.

Conversely, low activity in social networks is often a bad sign for a cryptocurrency.


Tokenomics is the economics of supply and demand for tokens.

The higher the demand or the lower the supply, the higher the price of a cryptocurrency.

Vice versa, lower demand or higher supply reduces the cryptocurrency price.

If people actively use a token, its demand increases. Therefore, it is important that it has utility.

Tokenomics also reviews the distribution of tokens if a project has recently entered the market. They are usually released to the market according to certain rules called vesting. When a new batch of tokens is issued and distributed, there is often downward pressure on the price.

Crypto Market Regulation

Global regulation of the cryptocurrency market is another fundamental aspect to consider.

For a long time, FUD spread along with the news from China, which constantly banned and imposed restrictions on cryptocurrency activity within the country until China put a complete ban on all cryptocurrency transactions in the Autumn of 2021. As a result, two-thirds of the world's Bitcoin mining was distributed to other countries.

Occasionally, there are positive events that cause a FOMO effect. For example, in September 2021, the president of El Salvador made Bitcoin an officially recognized currency of the country, the first time in the world when a cryptocurrency was recognized as such.

Still, the main country in terms of regulation is the United States. Profits from cryptocurrency transactions are taxed there, and the authorities are also closely studying the DeFi market and stablecoins. The latter may threaten Central Bank Digital Currency (CBDC), which many countries are planning to implement.

In general, it is believed that the more countries fully adopt cryptocurrency, the faster its mass use will come, the more users will be in the crypto market, and subsequently, its capitalization will be higher.

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Risk warning: The content of the article does not constitute investment advice and you are solely responsible for your trading activity and/or trading results.