Uncle-Boss

Fundamental analysis (FA)

Fundamental analysis is a
framework that aims to
identify the "true" value of an
asset. Fundamental analysts
study economic and financial
factors to figure out if the
market's valuation of an asset
is fair. Those factors could be
macroeconomic factors like
the state of the global
economy, the overall industry condition, or businesses connected to the
asset (if there are any).
Again, the goal here is to establish whether an asset is undervalued or
overvalued. Suppose that Alice rigorously studies a cryptocurrency –Bobcoin – which trades for $10. But Alice's findings indicate that the asset
should actually be worth $20. In this case, she might decide to buy lots of
Bobcoins as she believes that the market will eventually value them at
$20.
On the topic of cryptocurrency-specific fundamental analysis, it's worth
noting that some consider on-chain metrics when conducting their
research. On-chain metrics is an emerging field of data science. It is
concerned with data that can be read from public blockchains: network
hash rate, distribution of funds, the number of active addresses, etc. By
taking this abundance of public information, analysts can create
sophisticated indicators that measure the network's health.
Fundamental analysis is popular in the stock markets, but it's perhaps not
very suitable for cryptocurrencies in their current state. The asset class is
so new that there simply isn't a standardized, comprehensive framework
for determining market valuations.
What's more, much of the market is driven by speculation and narratives.
As such, fundamental factors will typically have negligible effects on the
price of a cryptocurrency. However, more accurate ways to think about
crypto asset valuation may be developed as the market matures.

Want the low-down on fundamental analysis?
Check out the Binance Academy article:
⬥ What is Fundamental Analysis (FA)? ➤ bit.ly/AcademyEBook1

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What is investing?

You might hear people talking about trading financial instruments, but you
might also hear them talking about investing in them. The aim in both of
these activities is similar (let's make some monaaay!), but they're
somewhat different in their methodologies.
When you invest in something, you're hoping to get a return on that
investment – the goal is to get back the money you put in, plus some
more. For example, you could buy a run-down fast food restaurant for
$100,000, fix it up, and try to resell it for $500,000 in a few years. Youcould also buy a stake in a small startup, believing that the stake will be
worth a lot more when the business grows.
But wait, we hear you ask, isn't that what traders do? Not quite. Yes, a
trader might buy shares in a business, but they're playing on a shorter time
frame. Traders frequently enter and exit positions to generate smaller
returns over a number of trades. Investors, on the other hand, generally
take a more passive approach – they invest capital into ventures or assets
that are likely to generate a larger profit on a longer time frame.
But how do you decide what to buy and sell? You might get lucky randomly
picking stocks and flipping a coin to decide whether to buy or sell them,
but it won't net you consistent returns. Most traders instead conduct some
form of analysis to decide what moves to make next. Broadly, the types of
frameworks used can be broken down into two categories – fundamental
analysis and technical analysis. Let's talk about those.

Trading Basics

What is trading?

It's probably wise to kick
things off with a
definition of the topic
we'll be discussing. A
staple of economics,
trading simply refers to
the buying and selling of
assets. When you buy
your groceries at the
local shop, that's a trade. When you exchange your old PC for a new game
console, that's a trade. We could go on forever here. To cut a long story
short, any activity where you give something to someone in return for
something else is a trade.
This principle really extends to the financial markets. You trade financial
assets like stocks, bonds, Forex pairs, options, cryptocurrencies, etc. Don't
worry if you don't know what any of those are yet. By the end of this book,
you'll be an expert!

What is investing?

You might hear people talking about trading financial instruments, but you
might also hear them talking about investing in them. The aim in both of
these activities is similar (let's make some monaaay!), but they're
somewhat different in their methodologies.
When you invest in something, you're hoping to get a return on that
investment – the goal is to get back the money you put in, plus some
more. For example, you could buy a run-down fast food restaurant for
$100,000, fix it up, and try to resell it for $500,000 in a few years. You
5
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