Cryptocurrency Fundamentals Analysis: A Quick Guide for Beginners

Entering the cryptocurrency market is full of opportunities but also hidden risks. Many investors blindly follow the trend and buy coins, only to end up losing everything. The key is having a reliable analysis method. Today, I will clarify how to use fundamental analysis to identify potential coins and avoid scams.

Why is it necessary to learn fundamental analysis now?

The crypto market is growing wildly. According to the latest data, over 25,000 digital assets are listed worldwide, and the total market cap once surpassed $3 trillion. More importantly, new investors are pouring in every day, with the majority being under 40 years old.

Market volatility is the norm. The same coin might rise 30% today and fall 20% tomorrow. In such an environment, relying solely on technical charts or market sentiment to make judgments will likely lead to losses. Fundamental analysis acts like a “radar system”—helping you see through the true value of a coin, rather than being driven by short-term fluctuations.

Industry forecasts indicate that the crypto market will continue to expand at a compound annual growth rate of 12.8% from 2021 to 2030, reaching $494 billion by 2030. This means that learning to analyze now can yield huge future returns.

The essence of trading: what you must understand

Trading seems simple—buy, sell, profit from the difference. But fundamentally, trading is the transfer of asset ownership. In financial markets, the objects of trading are called “financial instruments”—stocks, bonds, forex, options, futures, and of course, cryptocurrencies.

There are various trading styles: intraday trading (buying and selling within the same day), swing trading (holding for days or weeks), trend trading (following the long-term direction). Regardless of the method, to make money, you must master three analysis dimensions:

• Fundamental analysis (asset’s true value)
• Technical analysis (price movement patterns)
• Sentiment analysis (market psychology)

All three are indispensable.

What is fundamental analysis? Explained in one sentence

Fundamental analysis is about deeply exploring an asset’s intrinsic value to determine whether it is undervalued or overvalued.

The specific approach involves examining financial data, industry trends, market environment, competitive landscape, and answering a core question—what is the real value of this asset?

This method is not new. As early as 1934, investment master Benjamin Graham outlined the core logic of fundamental analysis in “Security Analysis”: before investing, you must comprehensively evaluate all fundamental factors of an asset. This theory has been applied to the stock market for nearly a century with stable results. Now, the same methodology is being applied to crypto markets.

Stock Market vs Crypto Market Fundamental Analysis

In stock markets, common indicators include:

• Earnings Per Share (EPS): How much profit the company makes per share
• Price-to-Book Ratio (P/B): How much investors are willing to pay for the company’s net assets

By comparing several companies within the same industry, you can judge who is overvalued or undervalued.

But cryptocurrencies are different. They have no revenue or net assets, so traditional indicators don’t apply. Instead, the industry has developed a new framework—On-Chain Metrics Analysis, a field focused on blockchain public data.

To be honest, there is currently no unified valuation framework for crypto assets. Fundamental factors have limited influence on crypto prices. However, as the market matures, more precise valuation methods will emerge.

The three key elements of crypto fundamental analysis

1. On-Chain Indicators (Blockchain Data)

Crypto’s unique advantage: every transaction is recorded on a public, immutable ledger. This is something traditional assets cannot do. By analyzing on-chain data, we can understand investors’ real behavior and market sentiment.

Why is on-chain analysis more trustworthy than market rumors? Because it’s based on hard data, not hype or emotions. You can compare data across different periods, track trends of individual assets, or even spot anomalies.

The value of a cryptocurrency includes two parts:

• Speculative value: People buy expecting it will appreciate
• Utility value: The actual problems it can solve

The core role of on-chain analysis is to distinguish these two. For example, if a coin’s community is growing, miners are active, and users are increasing, but the price is being pumped excessively—this is a red flag.

How to interpret on-chain indicators?

Hash Rate

Hash rate measures the total computational power of a PoW (Proof of Work) blockchain network. Simply put: higher hash rate = more miners = more secure network.

An increasing hash rate usually indicates that miners are optimistic about the chain, costs are relatively low, and profits are attractive. Conversely, a sharp decline signals “miner capitulation”—mining is no longer profitable, and miners are retreating.

For example, Bitcoin’s mining costs are influenced by three factors: current price, transaction volume, and transaction fees. Plus, direct costs like electricity and hardware. Miners need to carefully calculate whether to continue operations.

How it works: Miners use computers to solve math problems. They generate millions or billions of guesses (hashes) per second, like searching for a lottery jackpot in a vast ocean. The first to find the correct answer gets their block verified by others and recorded on the chain, earning newly minted coins as a reward.

Coins like Bitcoin, Bitcoin Cash, Litecoin, Dogecoin all use PoW.

Active Addresses

This straightforward indicator shows how many unique wallet addresses are involved in transactions within a certain period (daily, weekly, monthly).

An increase in addresses = more people using the chain. But note: one person can have multiple addresses, so this number is only a reference, not an exact user count.

Transaction Value and Fees

High transaction value indicates real circulation and demand. Transaction fees are like auction bids—if you want your transaction to be included quickly, you pay higher fees. On Ethereum, this is called “Gas.”

Over time, PoW block rewards decrease (e.g., Bitcoin halving events). To maintain miner participation and network security, transaction fees tend to rise. This is an automatic system adjustment.

2. Project Indicators (Qualitative Analysis)

If on-chain indicators are “hard data,” project indicators are “soft power.”

Team Background is Critical

Warren Buffett famously said: “The quality of a team determines the life and death of a project.” The same applies in crypto.

When evaluating a team, ask:

• Do team members have successful track records in this space?
• Can their technical capabilities deliver on the roadmap?
• If there is no core team, is the developer community active enough?
• Have team members participated in scams or suspicious projects?

GitHub is a good tool. Check the project’s code repository: Are there many contributors? Is the code frequently updated? If a project hasn’t been updated for years, that’s a red flag.

Understanding Whitepapers

A whitepaper is an essential “business plan” for every crypto project. It should clearly explain:

• What problem does the project solve?
• What technical solution does it propose?
• Why choose this project over competitors?

Bitcoin’s whitepaper (published in 2008 by Satoshi Nakamoto) is a benchmark—concise and powerful, sparking the entire decentralized finance revolution. Conversely, if a whitepaper is vague or illogical, it’s a warning sign.

Competitor Analysis

Many similar projects exist. Ask yourself: What are this coin’s unique advantages? What are its disadvantages compared to competitors? This determines its long-term survival prospects.

Is the Roadmap Credible?

A roadmap lists the project’s short- and long-term goals. It should specify when certain features will be released or upgrades made.

A good roadmap builds investor confidence; a poor one shows lack of direction. More importantly, has the team delivered on past promises? History is the best predictor.

3. Financial Indicators (Quantitative Analysis)

These are the hard metrics most investors focus on.

Market Cap

Market cap = current coin price × circulating supply

Why is market cap important? It reflects the overall market confidence in the project.

Think of the market as an ocean: large-cap coins are like big ships—relatively stable; small-cap coins are like small boats—more volatile but with higher growth potential.

Based on real-time data (December 26, 2025):

• Bitcoin: Price $88.7K, Market cap $1.77 trillion, Circulating supply 19.967 million, Max supply 21 million
• Ethereum: Price $2.97K, Market cap $3.5878 trillion, Circulating supply 120.7 million

These two dominate the crypto market and are relatively stable. Smaller coins are more susceptible to short-term sentiment swings.

Liquidity and 24-hour Trading Volume

Liquidity refers to how quickly a coin can be converted into cash. High liquidity means: buyers and sellers are available when needed, and transactions happen swiftly.

24-hour trading volume is a good reference. High volume usually indicates:

• Active market participation
• Price fluctuations are more sustained
• Investors have confidence in the project

Conversely, if prices rise but volume doesn’t, it might be a false pump, prone to sudden drops.

Circulating Supply vs Max Supply

Circulating supply: how many coins are currently in circulation.

Max supply: the maximum number of coins that will ever exist.

Bitcoin’s story is classic: max supply is capped at 21 million. Currently, about 18.9 million have been mined, with 2.1 million remaining. Additionally, an estimated 3.7 million are lost forever (including Satoshi’s 1.1 million), so actual circulating supply is less than 21 million.

Some projects have no max supply cap—be cautious, as unlimited issuance can dilute value.

Avoid pitfalls: Don’t just look at the absolute price. Some say, “This coin costs $0.01, while Bitcoin is $88,700, so the lower-priced coin must be easier to appreciate.” That’s a “unit bias.” The real focus should be on market cap, not unit price.

Connecting the analysis methods

Knowing theory isn’t enough—you need practical application. The complete analysis process is as follows:

Step 1: Initial Screening
Choose a coin of interest, check basic info. What’s the market cap? Supply? Recent trading activity?

Step 2: On-Chain Checkup
Review on-chain indicators. Are active addresses growing? How’s the trading volume? For PoW coins, is hash rate stable?

Step 3: Project Evaluation
Read the whitepaper, review team background, check GitHub activity, assess roadmap execution.

Step 4: Competitor Comparison
What advantages does this coin have over competitors? Is the market space large enough?

Step 5: Risk Assessment
Are there negative news or regulatory risks? Is the team stable?

Step 6: Decision Making
Based on all info, decide whether to invest and how much.

Limitations of fundamental analysis

Honestly, fundamental analysis isn’t foolproof.

In crypto, short-term prices are often driven by market sentiment, capital flows, and rumors. Even the best project can crash in a bear market. Conversely, coins with mediocre fundamentals can double in a bull market.

Therefore, most successful traders combine three types of analysis:

• Fundamental analysis tells you “what to buy” (long-term direction)
• Technical analysis indicates “when to buy” (entry/exit timing)
• Sentiment analysis reveals “market mood” (risk alerts)

Summary

The digital economy is still in its early stages, and the crypto market is constantly evolving. Mastering fundamental analysis equips you with a “valuation lens”—helping you see through the true and false of coins.

While it doesn’t guarantee profits every time, it helps you avoid most pitfalls. In this market full of opportunities and risks, that’s already a huge advantage.

Starting now, stop blindly following the crowd. Before each investment, ask yourself: Is the current price supported by the fundamentals? If not, wait. Patience and waiting for the right opportunity is much wiser than rushing in and losing money.