With only 21 million coins, Bitcoin is an incredibly rare investment. It’s no secret that the crypto markets are incredibly volatile. However, the rarity of Bitcoin makes it the most valuable cryptocurrency that you can invest in. The question is simply when the right time is to invest in Bitcoin. There are various models, strategies, and approaches you can use for Bitcoin price prediction.
While many of these strategies surround public perception of the crypto market, there are some economic tools you can use. This is where technical analysis can help you predict future trends in the crypto market.
Thinking about diversifying your portfolio with crypto? Read on for everything you need to know about using technical analysis before investing in Bitcoin.
The Crypto Market
The crypto market has been nothing short of a rollercoaster over the last few years. The general cryptocurrency market was worth just $10 billion back in 2016. This rose to a high of over $700 billion in December 2017 before crashing back down to around $250 billion in 2018.
However, the technology managed to disrupt the financial market and convinced retail investors around the world to invest. This is why the entire market rose to epic highs in 2020 and 2021. The pandemic shocked the global economy, sending the price of traditional stocks off a cliff.
This period of uncertainty saw millions of investors flock to decentralized investments such as Bitcoin and Ethereum. The influx of demand saw the price of Bitcoin skyrocket in 2020. The entire crypto market gained during this time and managed to reach a peak of over $3 trillion in 2021.
To put this in context, if you owned $1,000 of crypto in 2016, your investments would be worth over $300,000 in November 2021. However, inflation kicked in around the world and sent global economies back into disarray. This, along with the political environment around the world, saw the crypto market drop under $1 trillion in 2022.
This fall was not unique to the crypto space as almost every stock market around the world took a beating. Many economists agree that this was due to the economic environment around the world and not unique to crypto. While nobody likes seeing the value of their investments fall, it also opens up a great buying opportunity.
Bitcoin Forecasting
As mentioned above, the entire crypto space has been incredibly unpredictable in the last year. While the recent lows have been noteworthy, they also create an opportunity to invest in Bitcoin and other crypto. This is because you can invest while the market is low to maximize your profits when prices bounce back.
This is where Bitcoin forecasting comes in as many investors would like to know what the price of Bitcoin is going to look like in the future. This is an important piece of information as it allows you to time the market perfectly. In the ideal world, you want to invest at the lowest point and sell when it hits its peak.
Since nobody will know these exact points, forecasting is used to generate accurate estimations of what the market could look like. We all know that Bitcoin has crumbled in value over the last year, so the question is centered around when the prices will rise back to the highs of 2021.
How To Accurately Forecast Bitcoin Prices
When it comes to forecasting stock or crypto prices, accuracy is what you’re after. This is because the more accurate your forecast, the more accurate information you have to work with. Forecasts are generally described as ranges to remain accurate.
This means that the forecast for any particular asset won’t specifically state a price like $10. Instead, the forecast will indicate that the asset will be around $9 – $11. These ranges are usually charted with the real-time price so that you can visually see the possible future of that asset.
These concepts have been used in the world of economics for decades. These charts and forecasting methods have been used for stocks, bonds, and even currencies around the world. In this way, you can use the same proven concepts to help navigate the crypto space.
Navigating Bitcoin Volatility
It’s no secret that the price of Bitcoin is incredibly volatile. However, the same can be said for many stocks and currency pairings around the world. This means that the volatility of Bitcoin and other cryptocurrencies doesn’t mean that you can’t use these economic tools.
Volatility does make a difference when forecasting. In most cases, trying to forecast volatile assets like crypto result in less accurate results. However, this simply means that you can expect wider ranges for the estimated price charts.
While this is not ideal, it still helps you with basic investing decisions. This is because the forecast will clearly state the general trajectory of the price. The trajectory will either be positive or negative, each result helping you decide when’s the right time to invest.
Technical Analysis
Technical analysis is a trading disciple that uses historical data to make educated predictions about the future. These predictions are based on trends and statistical analysis done on the asset or similar assets in the past. This kind of analysis is used around the world to analyze investments, stocks, and even currency pairings.
How Technical Analysis Works
Technical analysis is a discipline that’s based on four main pillars. These pillars are used as guides to help calculate accurate predictions about the future value of an asset. Here’s a quick look at these essential pillars.
Pillar 1: Markets Alternate
The first pillar is that markets alternate between expanding and contracting. This means that a trend is either going to expand continuously or jump up and down. Understanding this concept will help you identify what situation you’re in with any asset you’re tracking.
Pillar 2: Trends Always Rise
The second pillar of technical analysis is that trends tend to rise over reversing. When the price of anything goes up, the first instinct that one may have is that it will crash soon. However, this is almost never the case.
When assets rise in value, it’s easier for them to continue to rise than it is for them to stop or reverse. This means that buying into an asset on the rise is not as risky as many may think.
Pillar 3: Trends Climax or Rollover
Everyone wants to know how the trend will end. However, most trends end in either a climax or a rollover. A climax is simply a high that indicates the ceiling for that particular asset at that time. A rollover is when the price starts to decline again after peaking at that high.
While many may assume the price will rocket down, the rollover process is usually longer. This means that the price will tend to peak, have some resistance at that point, and slowly decrease to meet the current demand.
Pillar 4: Momentum Over Price
When it comes to price targets, it’s important to understand the power of momentum. This is because momentum is usually the driving force for the price of the asset. Even if you’re talking about physical assets that have a fixed value, buying momentum can cause prices to continue to grow past that number.
Benefits of Technical Analysis
There are tons of benefits to using technical analysis when evaluating the forecast for an asset. This is because technical analysis strips everything down to the data and compares this data with the past. In this way, you can make educated, proven, data-driven decisions.
Technical Analysis Indicators
There are a few different technical analysis indicators that you can use to estimate the price of an asset. The simplest indicator is the price trend as this directly highlights the changing price over time. The second is volume indicators as it speaks directly to the buying pressure of the market at any particular time.
These two factors are incredibly important when determining the price and future price of an asset. Both price and volume can be charted, making it easy to view and compare to previous data. After all, comparing historical data is at the heart of technical analysis.
Can Technical Analysis Work for Bitcoin?
Technical analysis is a great tool that has been proven to work in the financial world. This economic tool is incredibly useful when evaluating the crypto space as it’s based on the same core principles. The price of Bitcoin is dependent on the same factors as most other stocks, meaning that you can use the same tools to evaluate it.
Assumptions of Technical Analysis
When talking about technical analysis specifically, there are a few assumptions that this approach makes. These assumptions are necessary in order for the strategy and approach to work. Here’s a quick look at these assumptions.
1. Efficient Markets
The first assumption is that markets are incredibly efficient. This means that the market is free and effective when it comes to correcting and pricing itself. Even in the most difficult of times, the market will adjust to meet the demand at that time, keeping prices accurate.
2. Prices Move in Trends
When it comes to prices, trends naturally follow. This is a fundamental principle that hints at the psychological aspect of investing and economics. When prices rise, attention is given to the asset which only adds interest and demand for that asset.
3. History Repeats Itself
The third assumption that’s made with technical analysis is that history repeats itself. This means that if the same market conditions occur twice, the same result will appear as well. Historical data can then be used to help estimate the price of that asset in the future.
Bitcoin Price Predictions
Based on the history of Bitcoin, many people predict that the price will start rising again once the economy stabilizes. The geopolitical effects of Europe may delay the rise, but the rise is inevitable as economies around the world recover from inflation.
This is based on the historical data of Bitcoin and other assets in the past. While nobody knows how long it will take to reach its high of 2021, the general consensus is that Bitcoin will exceed this number and carry on into the distance.
Bitcoin’s rarity and popularity make it the most secure crypto that you can invest in. While Ethereum has developed new technology that makes it the most efficient crypto on the market, Bitcoin is still worth almost 50% of the crypto market.
Factors That Influence Bitcoin Pricing
As mentioned earlier, Bitcoin is the largest cryptocurrency on the market. With a market cap of around $450 billion, the price is down from its high back in 2021. If you’re wondering about the factors that influence the price of Bitcoin, here’s a quick overview.
1. Limited Supply
Bitcoin is an incredibly rare coin with only 21 million in existence. This rarity adds value to the cryptocurrency as Bitcoin can’t be printed or minted to exceed this number. In this way, the scarcity of the asset is set and won’t change in the future.
This scarcity is what drives the value of Bitcoin in the market. Other smaller cryptocurrencies tend to mint billions of coins. While this means that there are more coins to go around, it also means that each coin is far less valuable to invest in.
2. Market Demand
The single most influential factor that drives up the value of Bitcoin is market demand. This is simply the buying pressure within the crypto market itself. If millions of people are trying to get their hands on a Bitcoin, the price will naturally rise to meet that demand.
This is a fundamental principle of economics and is the reason why economic tools still work in the crypto space. When more people want something, the price rises. If that asset is rare, the price rises even more.
3. The Economic Environment
Investors and institutions around the world invested heavily in Bitcoin as a natural hedge against the economy and fiat currency. While Bitcoin does perform well as a hedge against currency, it’s still linked to the general economy. This is because if people don’t have money to spend, they are not going to be investing in Bitcoin as much.
The lack of buying pressure causes the price of Bitcoin to fall. In simple terms, the economy at large does have an impact on the price of Bitcoin and other alternative assets. This can be seen in the luxury space as luxury brands also drop in value when times are tough.
4. Social Perception
It’s no secret that cryptocurrency is a controversial topic, especially in the world of finance and investing. This is because many big investors still don’t understand the underlying value of including decentralized assets to your portfolio. While this can be brushed away as media noise, it does have a real-world impact on the price.
When crypto and Bitcoin are avoided in society, the buying pressure drops significantly. People are less willing to invest in crypto and institutions tend to divest from their positions. This sudden abandonment can cause the price to fall.
In the same breath, positive news can cause the price to skyrocket. This is what we saw in 2020 and 2021 as many people flocked to Bitcoin as a safe bet. The immense buying pressure caused the entire crypto market to reach a market cap of over $3 trillion.
Inflation and the global economy have taken a hit in the last year. In addition to this, popular crypto exchanges have received tons of bad press, making the entire crypto space look bad as well. While this has dropped the entire crypto market, it also created opportunities to buy in at a massive discount.
5. Regulations
As much as we love the decentralized nature of crypto, regulations are incredibly influential. This is because nobody wants to be caught on the wrong side of the law. When regulations are favorable, buying is made incredibly easy, and the price goes up.
However, the opposite happens when regulations are tight or confusing. This results in people being scared to invest and the demand drops significantly. This takes the price down with it.
Are Bitcoin Investments Worth It?
The global cryptocurrency markets are valued at around $1 trillion in January 2023. While this might sound massive, it’s important to note that this is down from a high of $3 trillion in November 2021. This means that there’s tons of space for growth in the next few years.
If you look closer at the crypto market, you’ll see that Bitcoin is the largest player. Representing almost half of the entire crypto market, Bitcoin is worth around $450 billion. This dwarfs other competitors such as Ethereum and Binance.
While this does not mean that Bitcoin is the best crypto, it does indicate that it’s the most trusted coin that you can invest in. In this way, Bitcoin remains the safest bet within the volatile crypto space. It’s true that billions of Bitcoins are owned by retail investors, but industry investors have also invested in the space.
This includes massive hedge funds, banks, and institutions around the world. Many of these financial institutions love Bitcoin and use it as a natural hedge against fiat currency and the general economy. While crypto is not completely detached from economic realities, it does serve as a great alternative asset.
The rarity of Bitcoin is enshrined in its DNA. This is because there are only 21 million Bitcoins in existence. This rarity gives the coin value and protects you against general inflation.
When To Invest in Bitcoin
When you go back to the fundamentals of investing, the rules are incredibly simple. To maximize your profit, you want to buy when the market is low so that you can profit when it reaches its peak. In reality, finding the lows and highs are incredibly complicated.
This is why the question of when to invest in Bitcoin and other crypto is so difficult. The entire crypto space has taken a massive hit over the last few years. While many people attribute this to inflated prices during the pandemic, others state that the fall is due to inflation and the economy.
While we can’t ignore the impact that the global economy has on the crypto market, technical analysis includes this as a factor. This means that you can still use economic tools like technical analysis to predict the price of Bitcoin in the future.
At its core, Bitcoin is an incredibly rare crypto that’s still the most popular option within the crypto space. With almost half the crypto market cap, Bitcoin is a solid investment for anyone looking to enter the space. The recent lows made it clear that it’s a great time to diversify your portfolio with cryptocurrencies.
As the global economy and inflation stabilize, you can expect prices to stop falling. However, trying to time the market perfectly never works. This is why you should consider investing continuously over a long period of time so that you can secure the best average price.
Diversify Into the Crypto Market Today
When it comes to bitcoin price predictions, there are various strategies, angles, and approaches you can take. While some predictions are made from pure speculation, technical analysis gives you a more accurate, academic view. This is because technical analysis makes sense of the volatile crypto market by leveraging proven economic tools.
While these economic tools are effective for analyzing the stock market, the crypto market is far more unpredictable. However, technical analysis remains the most effective method. If you’re thinking about investing in crypto, visit our website for the latest news.
Comments by Cointiply Staff