Fundamental Analysis for Cryptocurrency

All too often, it seems that fundamental analysis of cryptocurrency projects are either glossed over or ignored in popular discussion. When this is combined with elaborate blitz campaigns in the media to promote premined currencies, it becomes dangerous for the newcomer to the markets.

In the hopes of clearing up some of the basic issues surrounding this topic, I’ve compiled a list of factors as a reference to be examined for new cryptocurrency announcements.

Specific currency picks may be made by us from time to time. This is one set of guidelines we use to separate the wheat from the chaff, and could be considered a moderate risk approach in the overall views of our team – neither encouraging ventures into pump and dump turf, nor entirely discarding the multitude of new clones that have sprung up.

Good:

In any cryptocurrency, look for the following indicators of health and potential success:

Active developer team

Necessary for survival of the project. Protects against weaknesses found by attackers, by fixing bugs in the software. Builds crucial centralized tools like block explorer.

New idea

Pushing the limits of what types of things can be achieved with cryptocurrency is a great way to attract lasting attention, especially with sustained focus.

Strong branding

As with any project, good branding and appearance are a prerequisite for being noticed by many people, as well as a sign that the project cares about these things and has the resources to address them.

Community interaction

Strong support from the community can be observed in forums, IRC, blogs and discussion sites.

Evil:

And, be careful of these warning signs for pump and dump scams:

Stay away from virtual mine shafts!

Premines

The developers have pre-allocated a large number of coins to a private address. A simple pyramid scheme.

Stealth launches

The launch team mines a large number of coins without announcing the launch of mining publicly and/or ahead of time. AKA “early mining.”

No visible developer

The coin may be a project with little to no community backing.

Neutral:

Finally, the following factors seem to play less part in the adoption or legitimacy of a coin project, but may be useful to note as secondary to the above indicators:

Support from existing service providers (retail, pools, exchanges)

These providers often have policies which screen out less qualified currencies. However, some providers are happy to jump on board with pump and dumps, so look carefully at the rest of the currencies being accepted.

Total number of coins to be created

The number of total coins seems to reliably affect the trading value of any cryptocurrency. Coins with more total coins are generally worthless per coin in proportion to the number of coins, and vice versa. Also note that a premine with a large number of total coins may be able to more effectively hide the premine.

Number of coins rewarded per block

In a well organized project, this may play into the “New idea” or “branding,” where a coin’s block reward structure plays to some specific goal.

Do you have some more insight on the fundamentals for cryptocurrencies? Let us know in the comments section.

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