This article is not an investor's manual or a stock market investment course. It is a small introductory guide on how to perform a business analysis and what factors you should consider before making an investment decision within the crypto market.
Keep in mind that fundamental analysis (business analysis or SWOT) is only part of the whole picture that you must build before making an investment. In addition to the analysis that you will know superficially in this article. You will have to learn, to append to your analysis chart, market theory, law of supply and demand, analysis and interpretation of charts, market capital analysis, and everything that speculation in financial markets entails.
You must also define yourself. Do you want to be an investor or a short-term trader? How much capital are you willing to risk? How many assets will your portfolio have? Also take into account that, being a technology market, you must be learning day after day how it evolves, what news may affect the companies in which you have introduced money, regulatory laws, etc.
These are just a few aspects that you should consider to become a professional trader in any financial market.
- Trader or investor?
- Crypto is stocks. Don't get complicated
- Introduction to Market Interpretation
- What is a Fundamental Analysis?
- Development points: Fundamental analysis
- Accumulation and Distribution Processes
- Building the portfolio: Polkadot
- Why Polkadot?
Trader or Investor
Before entering the world of investments, be it crypto, currencies, bonds, DeFi or futures contracts, you must ask yourself what type of investor you are. Clearly if you do not have a tutor or apprenticeship in a suitable institution, such as an investment fund, reaching this type of answer is more difficult.
You must know if you want to be an everyday trader, that is, a trader, a speculator. Which operates during certain hours in the market with a certain system. Either Scalping, intraday or Swing. Carrying more than a portfolio, a trading account that is not fixed to a particular asset.
If you want to be an investor, then you will buy long-term positions within the market. Weeks, months and even years. For example, let's say you bought Bitcoin at $ 3,500 on March 12, 2020 and you just sold your positions on March 14, 2021 at $ 60,000. As an investor you will own a portfolio with active touches you are willing to have. These positions will be released with a certain time goal. Your way of trading will be calmer than that of a day trader.
Knowing how you invest allows you to know how you manage your capital. What is the strategy you are going to use to enter the market. What is the strategy you will use to exit the market. The commercial strategies are attached to the personality of the operator, that is why he cannot forget one of the key points of this profession; know yourself.
To give you an example in my personal experience: I introduced myself since 2016 in the world of crypto investments, the last 4 years I have spent investing in my financial education, I had the opportunity to study in a hedge fund and lead cryptocurrency portfolios. In addition, during my stay at the fund, I learned to trade currencies at a professional level, so my role in the market became a little easier for me, I quickly realized that I wanted to belong to the financial market of my generation, finance. technology and long-term investments. I define myself as a crypto investor and entrepreneur. And just as I have done it here, it is important that you do it too.
Crypto is stocks. Don't get complicated
In my career as an investor, I have had to explain the concept of cryptocurrencies to many people of all ages. In general, those who approach this business, have or have no idea what it is, those who have an idea, little know the technological part and those who do not, do not know any aspect. The good news is, we have all heard people talk at least once about the stock market or stocks.
That is why I recommend to the reader, that if you do not know about crypto, but you do know about stocks, please go back to the basics for a moment, since the analysis that we will see today has the same fundamentals as in 1920 analysts such as Richard Wyckoff used to analyze the companies of its time.
As I mentioned in a previous article (read here) cryptocurrencies are not currencies, they are the technological product of a certain company. Ethereum shares are ETH. Polkadot shares are DOT. And so on. Which means that its operation is very similar to that of a Google Stock, Apple, Netflix etc. They depend on: market capitalization, company objectives, laws that may affect its development, reputation of investors, incursion of crimes due to asset retention, new projects that the company is generating, what innovation it offers to the market, etc.
Understanding this point will greatly facilitate your entry into the market, if you opt for the investor side, sometimes with knowing the projection of the product and its quality, you can achieve very good profits.
Introduction to Market Interpretation
This is where we start to add things. Not only is it enough to know the quality of the product, its investors or technology. This works very well, especially when trying to capture the best initial sales or ICO offers. But once the stock begins to trade in the financial market, traders and investors will begin to move the price to make a profit by difference.
This is where you must be prepared, because if you want to stay in the game you will have to know how to enter and how to exit positions. To understand what is happening on the chart you need to learn various market theories, such as:
These are some of the most important market theories that you must learn to interpret financial markets. Financial markets are not only analyzed under these theories, they are just a compliment that will shape your market strategy. You will also need to learn theories of economic analysis such as: JR Hicks' theory of price formation.
You have to learn each and every one of the psychological aspects that occur in the markets. What are the important reaction areas and how should you position yourself if the asset is located in one of them or leaving a relevant area.
Reading the price and the trading tape is one of the most complex and important activities in the investment business. Traders and theorists like Richard Wyckoff define the interpretation of price as if it were an art.
Fundamental for Fundamental Analysis
Fundamental analysis, business analysis or SWOT can have several meanings in the investment world that are worth clarifying.
Fundamental analysis in the currency market is commonly known as the analysis of the political, social and economic world landscape. Also associated with this study, the impacts of reports or important data such as; unemployment rates, interest rate hikes or ECB statements.
In the world of Stocks this has another meaning. For stocks, fundamental analysis or SWOT ( Strengths, Weaknesses, Opportunities, and Threats). It is the analysis that you must do to the company. For example: what is your market capitalization? Who are the investors of the project? Which companies are interested in the project? Who is the developer team? Mission and vision of the company, map of objectives, in the case of crypto you must know if the action can be mined or not, and if so if it has been pre-mined, you need to read the white paper. What technological innovation does the project offer? That is, you must make a complete X-ray of the business part.
Prices are shaped by market makers, strong hands. They will do this by pumping capital, introducing volume, the gasoline from the market, and then generating the supply and thus making a profit by difference. This will only happen if there are people interested in creating a market for the project.
In the next section, we propose some points to consider from the fundamental analysis that you should take into account.
Development points: Fundamental analysis.
The following are points or factors that you should consider to invest in the crypto market, just some of them, to be able to observe all of them and see how to apply them it is necessary to do a complete financial study. These aspects try to gather information from the macro to the micro.
- Existing industry trend, represented by a group of stocks (crypto assets) in correlation.
- General market trend (technology market) The internal trend that attacks the company's technology.
- Financial trend.
- Market capitalization.
- Management trend of managing investments.
- Acquisition trend and new investors.
- Leadership trend within the industry.
- Tendency of appearance in the development space
- Risk management
- Business portfolio (if the company owns)
These are just some of the factors that you should consider when carrying out all the fundamental analysis.
Assembling the portfolio: Polkadot
Once you are aware of all the processes necessary to assemble a portfolio, the time has come to choose the assets. In this case we are going to choose Polkadot. We will use some steps from point number 5 and others that will be added in this section. This is just a business analysis model.
Coin Market Cap Position: 6
Project Definition: Polkadot is an open source multi-chain sharding protocol that facilitates cross-chain transfer of any type of data or assets, not just tokens, making a wide range of blockchains interoperable between us.
Creators of the project: Polkadot was founded by the Web3 Foundation, Its founders are Dr. Gavin Wood, Robert Habermeier and Peter Czaban.
Tech Innovation: Custom blockchains are quick and easy to develop through the Substrate framework and can be connected to the Polkadot network in minutes. The network is also very flexible and adaptable, allowing the exchange of information and functionality between participants in a similar way to applications on a smartphone. Polkadot can be automatically updated without the need for a fork to implement new features or eliminate bugs.
Tokens outstanding: 10 million DOT shares outstanding.
Market Cap: $ 29,952,303,331.01
Exchanges: Binance, Huboi Global, HBTC, OKEx and Binance.KR.
Existing trend in the industry: Bullish since December 27, 2021
Existing market trend: Bullish.
As you can see, these are data that you should consider when assembling your portfolio, the fundamental analysis to carry out the portfolio must be such research work very similar to the model that we express above (remember that many other data are missing).
I have selected Polkadot for the following reason. We are talking about the fact that the company to be selected must be innovative in a highly competitive market. As you can read in the information above from Coin Market Cap in the research process. It is mentioned that Polkadot does not need a fork and can update itself to repair and update errors.
Each and every one of the cryptocurrencies has forks to perform exactly the same job, repair errors and update. Polkadot does not need it, so if we talk about the fact that in the crypto market that we know the fork has always been a necessary fact and Polkadot eliminates this, there is an innovation within the market, which has undoubtedly attracted the interest of millions of investors.
Scalability and its problems have always been talked about. How the increase in the network will affect the processing of the chain and will bring endless problems. Polkadot uses a sharded multi-chain, which means that its processing is in parallel, allowing it to process endless transactions on multiple chains in parallel (“para-chains”). This processing power greatly improves scalability.
You see that in addition to everything I have talked about previously, I have looked at two innovative factors within cryptocurrencies, two problems that have haunted bitcoin and ethereum from the beginning. These are attributes that you must incorporate into your fundamental analysis. It is very important that the selection you make for your portfolio unquestionably possesses all the factors that we have discussed above.
Carrying out a Fundamental Analysis does not only imply an isolated dissection of the company, indisputably all these fundamental or business factors directly affect the price.
You must have knowledge of the terrain where you are going to develop, in the case of crypto you must know a lot about technology and always be very up-to-date. Know what the latest projects are and also understand how to follow the evolution of the market.
Remember to consider: Creators of the company, Short and long-term objectives of the company, project investors, project sponsors, market trend, market capitalization, technological innovation, adding all that we have mentioned above.
If you decide to be an investor or trader, remember that the first thing to do is invest in your education. Before starting to generate profits in the market, you must go through a process of learning and experiences to be able to live from this business.
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Source information Polkadot: