The core of investing in an asset is speculating which way the price would go. No one can know exactly when and how much the price will increase/decrease. Even the top analysts cannot promise their predictions will come true. But that does not mean we can only place a bet and wait for the outcome. With the right methods and study, we can learn how to predict bitcoin market trends.
In the following articles, we are going to explore two main types of analysis methods in the crypto industry.
Table of Contents
How To Predict Bitcoin and What is fundamental analysis?
Fundamental analysis focuses on the factors that influence the price of an asset, such as the economy and industry conditions. Fundamental analysis aims to evaluate the value of an asset to see whether the market may have underestimated or overestimated a crypto’s value. For instance, market adoption is an important factor in determining bitcoin’s price. Based on the law of supply and demand, when more companies adopt bitcoin, the demand for bitcoin shall increase, thus driving the BTC price up.
The amount of Bitcoin is capped at 21 million but only a small percentage of the total supply traded on the market, as a majority of Bitcoin is held as savings.
Demand is an important factor that can influence the price of bitcoin. The popularity of bitcoin will drive up its prices while the lack of interest in trading will lower the value of Bitcoin.
2020 marked a milestone in the history of Bitcoin as several institutional investors and big companies began to use Bitcoin as a means of payment or recognized it as a store of value. Some of the biggest companies providing bitcoin-related services are Paypal, Visa, Greyscale, and Goldman Sachs. If more companies and countries/regions accept Bitcoin in the future, we can expect Bitcoin’s prices to increase.
Power of the media
Media is another important factor that has a great effect on BTC prices. Most retail investors gain information via the media and media can attract or scare away potential users. Media can impact the market sentiments and the market will respond. Take Elon Musk, Tesla’s CEO as an example, Musk has been a crypto advocator. With the name of “Elon Musk Effect”, his tweets on cryptocurrencies had significant influences on the markets sentiments. In May, his break-up with Bitcoin contributed to the crash of the whole crypto market. In addition, after his Twitter poll on whether people wanted Tesla to accept dogecoin was placed, dogecoin surged 20%.
The effect of media on Bitcoin’s price is usually a short-term one. Investors should keep up-to-date with the market and manage their positions.
How To Predict Bitcoin & What is technical analysis?
Technical analysis analyzes statistical trends based on historical activity — examining price movements and other vital indicators, such as trading volume. Technical analysts believe that prices follow trends and history repeats itself. They generally look at these indicators: price trends, chart patterns, moving averages, support and resistance levels, etc.
Identify cryptocurrency trends using Average Directional Index
The Average Directional Index is very popular in identifying and measuring market strength. With ADX, traders can better read the overall market and evaluate the strength of a trend.
ADX calculations are based on a moving average of price range expansion over a given period of time. In the chart, ADX is a single line with values ranging from zero to 100. A reading below 25 indicates that the asset is trading sideways. The ADX breaking above 25 suggesting that the price is trending. Generally speaking, the higher the ADX reading is, the stronger is the asset trending in one direction.
Identify cryptocurrency trends using parabolic SAR
Parabolic SAR, also called the Parabolic Stop and Reverse indicator is a very popular indicator that helps traders gauge which direction an asset is moving and what are the suitable entry and exit points.
As the name of the indicator suggests, the Parabolic SAR indicator identifies where trends stop and reverse based on price parabola. On the chart, the Parabolic SAR is represented by a series of dots placed either above or below the price bars.
The indicator is very easy to read: a dot below the price is considered as a bullish signal, while a dot above the price indicates bearish moves. If the dots flip, it is indicated that the momentum may reverse, and that’s where an enter or exit point appears.
Predicting the bitcoin price is hard in that Bitcoin is a very volatile asset. To make money from trading Bitcoin, you need a systematic approach and invest lots of time in studying the trends of the market. There are over one hundred indicators and it is impossible to master all of them, so choose the ones that are more popular and do your research.
Bitcoin is the largest, and most popular, cryptocurrency in the market today. It was created in 2009 and has spawned the entire crypto market that is seen today.
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