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Fundamental analysis is a method of calculating the valuation of a financial asset. A fundamental analyst studies both economic and financial factors to determine if an asset's value is fair. These may include macroeconomic conditions, such as the general state of the economy, industry or business associated with the asset (if there is one). The latter are often monitored through macroeconomic leading and lagging indicators.
After fundamental analysis is complete, analysts aim to determine whether the asset is undervalued or overvalued. Investors can use this conclusion when making their investment decisions.
In the case of cryptocurrencies, fundamental analysis may also include an emerging field of data science that deals with data from public blockchains, called on-chain metrics. Such metrics can include hash rate, top holders, number of addresses, transaction analysis, and many other things. From the vast amount of data available on public blockchains, analysts can create complex technical indicators, which measure certain aspects of the overall health of the network.
While fundamental analysis is widely used in the stock or Forex market, it is less appropriate for cryptocurrencies in their current state. This asset category is so new that there simply is no comprehensive, standardized framework for determining market valuations. More importantly, the market is mostly driven by speculation and narratives. Therefore, fundamental factors will usually have a negligible effect on the price of a cryptocurrency. However, more precise ways of thinking about the valuation of crypto assets could be developed as the market matures.
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