Following the recent dynamics of GameStop actions (NASDAQ shares - ticker GME) and AMC (AMC) and DOGE and XRP tokens, investors around the world are rightfully questioning the fundamental analysis of investments.
Good investments or bad investments
What separates good investments from bad investments is the technique with which a market forecast is accompanied in order to maximize the upside and minimize the downside. For example, in 2011-2012, many investors looked for ways to speculate on the same prediction: that there would be a double recession and inflation would be rampant after unprecedented monetary policy interjections. What tools did most investors use to express this point of view?
- Shorting on US stocks (in a 10-year bull run)
- Short selling of Spanish, Italian and Greek government bonds (yields are now 0% or less after the European Central Bank has substantially nationalized these countries' debts over the past decade)
- Purchase of gold (which has been trading without significant returns for seven years before receiving a bullish offer after COVID)
- Move teams of troubled analysts to Europe to buy European bank debt that should theoretically be offered by these troubled banks for pennies on the dollar (this didn't work, as banks simply kept this debt at face value on their balance sheets without ever selling)
To date, it can be said that none of these investments have worked, even if the idea was valid. In fact, one of the best investments to exploit the theme of monetary policy and recession has turned out to be the purchase of bitcoin. Unfortunately for most investors, this tool wasn't in their playbook yet.
Most investors believe that digital assets are an imitation version of cryptocurrencies, but the reality is that the universe of digital assets today is very diverse. Therefore, the playbook has expanded, as well as the investment themes that an investor can express.
The fundamental analysis of digital resources
In general, the goal is to find the maximum upside potential per unit of potential downside risk. While perhaps many will be surprised, digital assets offer a variety of ways to structure these investment setups.
The digital asset ecosystem has evolved into a complex asset class and has perhaps become the perfect asset class for fundamental analysis and low-risk, high-return investing.
Each digital asset is unique and has different properties and attributes that create value. Many analysts are of the opinion that finding an upside is not as important as limiting the expected downside. Digital asset investors are often impatient and expect immediate results and rewards.
Therefore, anything that does not increase immediately must be wrong or does not justify an investment. But this is a very shortsighted view. This space is proving to have a lot of value when looking beyond charts and volatility.
