🐥How To Predict Cryptocurrency Prices
BY DANNY COIN
Last updated
BY DANNY COIN
Last updated
Cryptocurrencies are emerging financial and trading instruments that have created quite a stir in the global economy. Unlike conventional currencies, cryptocurrency is decentralized and backed up by blockchain technology.
With an influx in investments and potential trading opportunities, a trader or an investor must understand the market dynamics and be able to predict the prices.
We’ve compiled this article to increase your understanding of the ways you can use to predict crypto prices effectively and the factors that influence its value.
Before we go further, it’s crucial to understand that there is no way you can exactly tell about future trends. However, these analytical methods increase the probability of making the right move regarding crypto trading and investments.
Evaluating the crypto market changes and influences provides crucial insights for the trader and predicts future trends. There are three basic methods used to predict these prices. We’ll briefly review each way to develop a broader understanding.
It involves using historical data regarding the price and in-detail evaluation of the trends. This technical analysis is preferred when the market continually increases and decreases, essentially repeating the same trend.
Crypto traders examine these past price movements and statistics like the trading volume to predict future trends. Here’s a brief list of practical methods used in technical analysis for crypto predictions.
Trend lines are the most fundamental way of predicting crypto prices. These lines connect two price points on the chart and are extended in the same trajectory to reveal whether the price goes up or down.
Bollinger bands are used by long-term crypto investors that reveal the average price range of the crypto asset.
The average directional index is a significant technical indicator that reveals the trend’s strength.
Standard Deviation tells us how much an asset’s price varies over a specific amount of time.
The relative strength index reveals the price trends and evaluates related market variables to determine whether there are issues like the asset being oversold.
The moving average reveals the direction of the price trend. This method considers the middle price movements over an asset, deriving the probable direction.
Other methods include the Fibonacci ratios, the volume-weighted average price (VWAP), the time-weighted average price (TWAP), and resistance levels.
The fundamental analysis is the most used, as it involves evaluating and reviewing several market factors on a domestic and international level. This analysis also evaluates the current economic and political conditions for better inference.
Fundamental analysis is a powerful prediction method for long-term crypto investors as it evaluates the price based on future market trends than just reviewing past price charts. Two basic approaches are used to conduct fundamental analysis.
The first approach is called top-down and is used widely. This roadmap for analysis focuses on macroeconomic factors like interest rates, economic conditions, inflation levels, GDP, and employment rates to predict price trends.
In contrast, the bottom-up approach is based on the evaluation of microeconomic factors like the cryptocurrency’s current value, the financial stability of the company holding the cryptocurrency, and their financial earnings, to name a few.
Here’s a list of some parameters to consider to aid in predicting future price trends:
The cryptocurrency’s position in the market in terms of value
Total supply and circulating supply of the crypto asset
The utility of the digital asset and the current use scenarios
The user base and the volume of stakeholders involved
Evaluation of the leading team behind the crypto project
The number of listings present on different exchanges
Reviewing any news regarding the future price of the digital asset you own
Knowing about the national and international regulations regarding the crypto industry
It’s crucial to understand here that a single fundamental analysis indicator cannot predict the future of your crypto investment. However, you can perform a basic fundamental analysis by reviewing the parameters shared here.
Nowadays, smart contract auditing is gaining traction as this auditing method is useful in better evaluating the crypto asset you are investing in.
This analysis works in conjunction with technical analysis. The quantitative analysis calculates financial ratios like discounted cash flow and earnings per share.
Fundamental analysis is preferred to predict an increase or decrease in the market as it uses several current and future parameters instead of relying on historical data.
It’s a preferred choice for long-term investors as it utilizes a wide range of data to make the inference. Rather than examining the price charts, fundamental analysis always focuses on external factors and related microeconomic and macroeconomic issues affecting the market trends.
Although the crypto market is well-known due to its volatile nature, it’s imperative to understand the factors influencing its volatility and instability for better future predictions.
As the industry is relatively new, there are concerns over its use, and governments across the globe are still regulating it. Significant changes in these regulations can trigger an increase or decrease in the market.
Inflation, GDP, unemployment, and interest rates can influence investment decisions, creating ripples in the market.
Increasing scams, hacks, and fraudulent exchanges have raised several security concerns among crypto investors and traders. These events portray a negative picture, decreasing the trust of the investors.
Most cryptocurrencies use a tactic to gain massive users, highlighting a positive sentiment and influencing investors to purchase assets.
With an increasing number of investors flocking in, the price spikes quickly before getting unstable. The instability further creates a fear of a crash, making many investors pull out and resulting in a price fall.
Tech developments like an improved blockchain system or a better cryptocurrency are game changers that can affect future market trends.
For example, if a new digital coin is launched that provides more security features than its competitors, there will be an increase in the future market price. Likewise, when exchanges and crypto custodians use better features, it will positively impact the market prices in the long run.
The majority follows what the print, mainstream, and social media say about a particular issue. These powerful modes of communication significantly impact market sentiments.
For example, if the media highlights the advancements in the industry and portrays it as a secure investment instrument, more investments will be turned in.
These factors have turned the crypto industry into a roller coaster ride for the investor, decreasing the growth of this emerging and promising market. It will still take time to grasp the concept of a decentralized currency and see it as equivalent to real money.
Predicting cryptocurrency prices requires thoroughly studying past, present, and future trends. Other factors include evaluating the associated micro and macroeconomic conditions.
Developing a broader understanding of these analytical instruments is necessary no matter what analytical tool you use to predict future market trends. Hence, it becomes easier to use them to their full potential.
It will take time to conduct your own research, and still, there’s no guarantee that your prediction will become true, but you will surely gain knowledge and refine your research for future trades.
