What is Fundamental Analysis (FA)?
02/09/202503:27:04
Whether in the century-old stock market or the emerging world of cryptocurrency, there’s no such thing as a “sure-win formula.”
What traders can do is use different tools to analyze, evaluate, and make decisions.
These tools generally fall into two categories:
- Fundamental Analysis (FA)
- Technical Analysis (TA)
Today, let’s focus on Fundamental Analysis — a core method for evaluating the true value of an asset.
What is Fundamental Analysis?
Fundamental Analysis studies the intrinsic value of an asset and determines whether it is overvalued or undervalued.
It relies on various data and information, including:
- Company/project financial health
- Market and industry position
- Macro-economic conditions
For example, when analyzing a company, you might:
- Review earnings, balance sheets, and cash flow
- Analyze industry competition
- Consider macro factors like interest rates and inflation
Ultimately, you’ll estimate a fair value range and compare it with the market price to decide whether to buy, sell, or hold.
Fundamental vs. Technical
| Fundamental Analysis (FA) | Technical Analysis (TA) | |
|---|---|---|
| Core Idea | Price ≠ Value, study underlying factors | Past trends can predict future movements |
| Focus | Financial data, industry trends, macroeconomic environment | Price charts, trading volume, trend patterns |
| Suitable For | Long-term investing | Short-term trading |
| Advantages | Can identify undervalued assets | Helps capture entry and exit timing |
Many traders combine both: use FA to set the direction, and TA to find entry points.
Common Fundamental Indicators
In the stock market, these are widely used; in crypto, there are adapted alternatives.
Earnings Per Share (EPS)
Formula:
EPS=Net Income−Preferred DividendsOutstanding SharesEPS = \frac{Net\ Income - Preferred\ Dividends}{Outstanding\ Shares}EPS=Outstanding SharesNet Income−Preferred Dividends
Higher EPS is better, but should be evaluated alongside other metrics.
Price-to-Earnings Ratio (P/E)
Formula:
P/E=Price÷EPSP/E = Price \div EPSP/E=Price÷EPS
High ratio → possibly overvalued; Low ratio → possibly undervalued.
Price-to-Book Ratio (P/B)
Formula:
P/B=Price÷Book Value per ShareP/B = Price \div Book\ Value\ per\ ShareP/B=Price÷Book Value per Share
P/B < 1 → the asset may be undervalued.
Price/Earnings to Growth Ratio (PEG)
Formula:
PEG=P/E÷Earnings GrowthPEG = P/E \div Earnings\ GrowthPEG=P/E÷Earnings Growth
Considers future growth; <1 is generally considered undervalued.
Fundamental Analysis in Crypto
Traditional metrics don’t fully apply to crypto, so unique methods are used:
- NVT Ratio (Network Value / Daily Transaction Volume): crypto’s version of P/E
- Active Addresses: measures on-chain user activity
- Price-to-Mining Cost: evaluates miner profitability
- Whitepaper, Team, Roadmap: assesses project fundamentals and execution
Pros and Cons
Pros
- Systematic approach, helps identify undervalued assets
- Suitable for long-term investing
- Relatively reliable data (traditional markets)
Cons
- Time-consuming, requires strong analytical skills
- Not ideal for short-term trading
- Crypto data can be opaque and highly volatile
Conclusion
Fundamental Analysis is a key tool for many successful investors. Combined with Technical Analysis, it provides a more complete view of asset value and trading opportunities.
In the crypto market, while FA has limitations, it remains vital for long-term investment decisions.
Bifu reminds you: any analysis method must be paired with solid risk management.