How to Predict Crypto Prices

Summary:
• Many investors have been drawn into cryptocurrencies, but they often struggle to predict crypto prices. We give you useful guides on this.

If you are a crypto enthusiast, you have probably come across a number of articles and videos that predict crypto prices. But how exactly do they do it? And what informs their decision to do it? We discuss this in the sections below:

Crypto market analysis

To succeed as a trader in the cryptocurrency market, one has to conduct market analysis to know the best time to hold their positions, enter, or exit the market. There are three primary ways of crypto market analysis: Technical Analysis, Fundamental Analysis and On-chain analysis, as discussed below.

Technical Analysis

In technical analysis, past price movements are used to make inferences based on certain statistical patterns. Technical analysis is based on the theory that one can forecast future price movements based on past price movements, given enough time, holding other factors constant in the trading environment. Hence, analysts typically pay close attention to price movements and their corresponding trading volumes when predicting the potential levels of gains or losses. 

There are a variety of indicators used by technical analysts to help them identify price patterns and trends on charts. Examples include moving averages, trade volumes, support and resistance levels, and so on. These tools primarily help traders to have a deeper understanding of chart movements and spot trends.

Having said that, no single analysis tool or tool combination strategy guarantees total accuracy. While we can learn a lot about an asset’s probable price trajectory from its historical price trends, the past does not always reflect the future, and vice versa. However, using multiple analysis tools in combination with fundamental analysis generally raises the accuracy of analysis. Furthermore, it is important to note that cryptocurrencies are substantially more volatile than other conventional assets.

It is also important to observe the behaviour of market volume over time, while analysing price patterns. The rule of thumb is that a decline in volume in an upward trend, indicates that the trend is about to come to an end, and in a downward trend, the reverse is true.

On-chain analysis

Investigating the actions of many market players, including institutional investors, exchanges, miners, and retail traders, is the goal of on-chain analysis, a branch of technical analysis.

The publicly available data on the blockchain is the focus of on-chain analysis. It’s one of a kind in the bitcoin industry, and traders use it to measure emotion and anticipate market movements. Traders employ on-chain analysis to determine the motivations behind market participants’ purchases and sales, such as hedge funds cashing out or miners paying payments.

Fundamental analysis

Fundamental analysis, unlike technical analysis, looks at the factors that influence an asset’s worth in the market. It primarily involves looking at a number of macro and microeconomic drivers and attempts to correlate them with price movement.

Some of the key factors crypto fundamental analysts look at include the economic, social, and political factors like national crypto regulations, like EU’s MiCA. For example, news like adoption of Dogecoin as a payment method for certain Tesla products can trigger positive sentiment around the coin, leading to price gains.

Sentimental analysis

Cryptocurrencies, have developed a reputation for being influenced by hype and emotions. Often, some meme coins and altcoins will spike or drop sharply, fueled by something as simple as a meme on social media platforms. When trying to forecast future patterns in cryptocurrency prices, sentiment research takes into account the general emotions, feelings, perceptions and thoughts of traders. Crypto analysts are not only driven by numbers; they also pay attention to shifts in emotional patterns, such as panic selling, fear, greed, hype etc.

In summary

There are multiple strategies and tools that traders can employ in predicting crypto prices. However, no single one is 100 percent accurate, and traders stand a better chance of succeeding if they use a blend of technical analysis, fundamental analysis, sentimental analysis, and on-chain analysis. In addition, it is important to appreciate that cryptocurrencies often experience extreme volatility, which can swing prices unexpectedly.