Hello everyone in this great community, it is a pleasure to write and share my thoughts once again here in this community. Today I will tackle the topic "fundamental analysis in the crypto market" and look at the difference between both, including some advantages and disadvantages. Without much ado, let us dive into the topic.
Fundamental Analysis (FA) is the method of identifying a stock's real or actual market value with the aid of specific tools. It is done by looking for stocks trading at higher prices than the real value or stocks that are trading lower than the real value. When the real market value of a stock is found to be lower than the market price, a buy or a sell is not recommended because the stock is deemed to be overvalued. On the contrary, when the real market value of a stock is found to be higher than the market price, a buy or sell recommendation is given because the stock is deemed to be undervalued.
Fundamental analysis is used in identifying securities that are wrongly priced in the market. It can also be used to study the strength of a specific industry, the overall state of the economy, and the financial performance of a company giving out the stock. In fundamental analysis, historical available financial data are used in evaluating the value of an investment.
In determining a company's potential growth, the fundamental analysis makes good use of the company's earnings, profit margins, revenues, return on equity, and future growth. You should note that, in fundamental analysis, there is a primary assumption behind that, and it is that the current price of a stock does not perfectly reflect the value of the company's price.
Examples of some metrics used in fundamental analysis include; interest rates, consumer price index, purchasing manager's index, gross domestic product growth, and exports or imports.
There are two factors of fundamental analysis and they are qualitative and quantitative analysis. Qualitative fundamental analysis deals with the quality, nature, and standard of data or information. On the contrary, quantitative fundamental analysis deals with the amount, numbers, ratio, and figures of data or information. In Qualitative fundamental analysis, the analysts take notice of the following factors; management, the business model, corporate governance, competitive advantage, and industry.
On the other hand, quantitative fundamental analysis, takes into consideration the balance sheet, the cash flow statements, and the income statements. Take note that, fundamental analysis differs from technical analysis. Technical analysis as well all know, deals with the usage of price trends and patterns to predict and determine the future price of assets. It also employs the usage of indicators such as MACD and RSI in determining the price of assets.
I shall be taking the indicators and explaining them one by one so we can all benefit from them. I hope to gain some time to do that. Here is where I will end today's article. Thank you all for your time and attention, I am looking forward to seeing you all in my subsequent posts.
