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Fundamental Analysis (FA)

Fundamental Analysis (FA)

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Fundamental analysis (FA) is a method used by investors and traders in financial markets to assess the intrinsic value of an asset or business by examining as most qualitative and quantitative factors as possible, such as company management and reputation, industry health, market capitalization, and other economic factors. The goal of fundamental analysis is to determine whether or not the price of an asset is overvalued or undervalued.

Fundamental analysis works on the understanding that the future potential of an asset should be based on more than just prior performance. It takes into account both microeconomic and macroeconomic conditions that may have an effect on that particular market.

Therefore, we may consider that FA seeks to determine how external factors can affect the performance of a company or project - especially those factors that aren't immediately apparent. These considerations focus on less tangible and more qualitative aspects, such as a company's leadership and how those leaders have performed in other business ventures in the past.

Fundamental analysis also seeks to better understand the industry-specific market and the future potential of a product or service in that market. Ultimately, their goal is to come up with a quantitative price that can be compared against the actual price of the respective asset. In other words, FA is a method that may help to determine whether or not something is valued too high or too low.

Despite being traditionally used to value stocks, fundamental analysis is applicable to nearly all kinds of assets, including cryptocurrencies.


Fundamental analysis vs. technical analysis

While fundamental analysis looks to a larger picture around the price of an asset - considering as many influencing factors as possible - TA is strictly focused on historical market data and market charts. While FA seeks to determine the real value of a trading asset, TA is used as a tool to predict the price action based on trading volume and past trends. Most traders and investors probably agree that both FA and TA are valuable in their own way. So instead of relying on one or another, a contextualized and balanced use of the two sounds more reasonable.

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