Thread by @alpha_pls

Years of obsessive research in this space has taught me to be a better crypto investor.

Here is how I do fundamental analysis 🧵👇

We've all been rugged or bought tokens at silly valuations.

The most celebrated investors in the world have come into this market and been rugged.

@mcuban is just like the rest of us.

You have to pay your dues in crypto.

But, hopefully this thread will help you to avoid those kind of losses in the future.

Improving your fundamental analysis is how you will beat the market over the long term.

Fundamental analysis aims to determine the intrinsic value of an asset, which is meant to be an objective measure of its worth.

This is how you should find your longer term conviction in an asset.

It will allow you to be confident that the odds of success are in your favour.

Good FA helps you stomach the volatility of crypto over the longer term.

I'll take you through my own process and how I do it.

This helped me to build early conviction in projects like $ETH, $AVAX, $LUNA, $LINK and more recently $POKT, $MAGIC and $GMX.

I split fundamental analysis into three categories:

1.Project analysis
2.Financial analysis
3.On Chain analysis

1. Project analysis

This is where I usually start.

I read the white paper and then read the white paper again.

I'm astonished at how many people pour enormous sums of money into crypto projects without reading the white paper.

The white paper should outline the following:

–Problem being solved
–Explanation of their tech solution
–Use case of the token
–Tokenomics
–Background information on the team

The white paper alone will give you a great foundation to continue your analysis.

Good white papers make you want to go down the rabbit hole.

Dig into the team. Like really dig in.

Check their academic references.

Check their LinkedIn to see their experience to date.

Check the number of citations they may have on scholar.google.co.uk

You have to ascertain if the team is here for the long run, or here to build an MVP (sometimes they don't even get that far) and use you as exit liquidity.

These guys are responsible for delivering the project, they need to be shit hot.

In the case of anon teams, you can still dig into their online presence.

What have they written on social media or elsewhere?

Check their GitHub contributions if they are developers.

DM them and see if they are willing to answer any questions.

Scrutinise the roadmap.

Sometimes there is a roadmap listed on the website, in the project’s docs or in some cases in the discord.

Look at the timeline to assess whether it is the right time to deploy your funds.

If a project isn’t shipping their main product for two years, then there might not be a rush to invest.

Use the roadmap to assess whether a team ships on time or achieves their milestones.

Transparency around this is also telling.

I like the way the @aavegotchi team present a monthly update on everything they’ve shipped:
blog.aavegotchi.com/aavegotchi-jan…

Do competitor analysis.

Who is the first mover in the sector and how does the market cap compare?

What advantages does this protocol have over competitors?

Have they managed to attract users?

Why will users use this project vs competitor solutions?

Social Media analysis

How does the project communicate on social media?

Is their marketing on point?

Have they cultivated a strong community that is willing to help with their marketing?

Is there a lot of social activity related to the project? Not just Twitter shill bots.

Join the discord and Telegram, get a feel for the individuals that have gravitated towards the project.

Are they discussing the intricacies of the project in depth? Or just saying "wen moon?"

Does the community make great memes?

Memes are indicative of a passionate and strong community and help to spread the narrative of a project.

Has any big brain anons written a good thread that can help you get more perspective?

CT is one of the best & worst places to get analysis of projects from. But, it’s always worth compiling good tweets/threads to see if you have missed any key details from your own research.

What is the UI/UX like? I can hear developers screaming UI and UX are not the same thing!

This is more of a subjective category of analysis. But you have to determine whether it is a great experience for a user and whether the interface is intuitive and easy to use without someone having to google “How to use _______”.

Yearn in 2020 vs Yearn in 2022

2. Financial analysis

As a second layer I am now looking at financial metrics.

I think it goes without saying that you should take a look at a project's market cap and fully diluted value when trying to assess whether something is fairly valued.

This is the starting point for most people.

However, there are still a lot of retail users that don't do this.

In 2021 we had many retail users who were buying Shiba at ATH shouting “it’s going to $1!” because they don’t understand market caps.

For reference, Shiba has a circulating market cap of 16 billion right now, with a price of $0.00003025.

This tweet was a week ago.

Everyone likes to say FDV is a meme in a bull market and sometimes it is, but sometimes it really isn’t.

Looking at the Solana dapps they offer a valuable lesson in FDV.

If something’s FDV is wildly out of sync with where it is presently (no working product, hardly any users etc) you are asking for trouble.

Apeing Solana dApps at insane FDV did not end well.

https://twitter.com/litocoen/status/1465628003396984832

Market caps can offer misleading valuations if you fail to factor in liquidity.

Liquidity is a measure of how easy it is to buy and sell an asset.

What exchanges is the asset listed on, or what is the dex liquidity like?

For dexes, you can play around with this by inputting massive numbers and seeing how much slippage is caused.

Illiquid assets can be very dangerous as as the price can shift massively if large holders decide to cash out.

e.g. Squid game token (one hell of an example)

https://twitter.com/Upsguy_/status/1455138506045628416/Video/1

Tokenomics, tokenomics, tokenomics.

Tokemonics is the economics of token supply and demand.

Supply and demand drive the value and price of cryptocurrencies.

The higher the demand relative to supply, the higher the price.

Is the token needed?

What is its utility?

More real world use cases means more users and more demand.

Reading the white paper might have given you some of the answers you need regarding token distribution, vesting schedules and emission rate.

In some cases a project may have pivoted and changed from the original white paper.

Check blogs and use Twitter search to see if anyone has written about the tokenomics.

Occasionally, vesting schedules, token distribution and emission rates can be very hard to find.

That is generally not a good sign.

Being unaware of potential supply side selling by the team can cause you to take some big losses in the short and medium term.

You need to understand the annual inflation of a project each year.

New tokens entering the circulating supply need to be absorbed by the market.

If stakers are earning large amounts of tokens then there will likely be heavy sell side pressure.

$MIR and $ANC had inflation rates of around 200% in year one, as the developers wanted to bootstrap the dapps and attract liquidity.

Price was always going to trend down in the short term.

Good timing from @cobie, because this is what great analysis looks like:

https://twitter.com/cobie/status/1493222043185262595?s=20&t=8a-TN0TxuM_wiPwERgAxSw

This won’t apply to projects without a product, but it will apply to live Layer 1s, dapps and infrastructure.

You can use @tokenterminal to get:
–Revenue of a protocol
–P/E and P/S of protocols and dApps

You can then apply more traditional stock analysis tools to help you assess whether something is objectively over or undervalued based on current revenue.

If a protocol clearly has great earning potential, is demonstrating great growth & the P/S is very low then it could be solid long term investment.

There are few candidates on this list...

You could even use these numbers to help build a discounted-cash flow model.

This is a popular valuation model for stocks which discounts the current value of a business by the future cash flows a company can generate.

For this two rates are key – an expected growth rate and a prevailing discount rate.

Based on a pull of each, the cash flows are decided and a fair valuation is arrived.

Here is an example of a discounted-cash Flow model that tries to find what the minimum price should be for 1 $ETH.

docs.google.com/spreadsheets/d…


The model spits out $10,200 per $ETH, suggesting Ethereum is highly undervalued.

Obviously, this model doesn’t take into account future changes to Ethereum, how L2s might impact demand etc., but it is still another useful tool to deploy when valuing an asset.

3. On Chain analysis

Lastly, I try and find out what is happening on chain.

Platforms such as @glassnode, @nansen_ai and @DuneAnalytics can tell you:

–Number of addresses & active addresses
–Number of addresses with balances over certain amounts
–Number of long term holders vs short term holders
–Supply on exchanges
–Notable wallet holders

There are many more metrics you can pull from these platforms.

I would say you are trying to find any reasons why this might not be a good time to buy.

e.g if a large percentage of the circulating supply has moved to exchanges recently then that could suggest that people are planning on selling.

You now have a shit load of information on the project and token, which can help you make a decision on whether this is a good long term investment.

I compile all of this info into a combination of docs and sheets, so that I can have all of this information in one place should I need to refer back to any of it.

Don't try and keep all of this information in your head.

Write it all down.

You will want to reassure yourself at various points, especially when the red candles are flowing.

I also want to say I have poured hours into researching projects only to decide not to invest.

I am fine with this and content knowing that I've done my due diligence and have decided to miss out on my own terms.

With all this being said, I am just another anon with a passion for crypto.

This process has worked for me, but I am no financial advisor or expert.

Hopefully you found something in this thread useful.

If you enjoyed the thread, please give it a RT, follow my account @alpha_pls and consider subscribing to the free newsletter!

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