When i hear the word "prediction" ,directly the image of the crystal ball, that fortune-tellers use pops into my imagination , a stereotype that was stuck to all fortune-tellers or seers I used to see in movies . My introduction has nothing to do with fortune tellers , but rather about crypto-tellers. Many questions hover on my mind, do crypto forecasters have an effective way to know if the price of a digital currency is going up or down?!!! Could they really be able to know the exact price movement?!! Definitely not, they are not fortune-tellers with Crystal balls, I doubt they can see into the future. In reality, traders, and investors make attempts to predict crypto price's movements through studying every movement and aspect of cryptocurrency to form a picture into a clear vision that helps them in investing . Knowing that their predictions can hit or disappoint, they are, obviously, aware of the dangers that ensue afterwards and are always willing to bear losses as well as they bear profits. So , let's take a brief look at the methods used to predict cryptocurrency's prices.
To predict the price expectations of cryptocurrencies, investors must make certain analysis that enables them to forecast the future of crypto prices movements , because the latter are not trading in a specific direction. There are many factors that influence them including sharp fluctuations in the prices that come up in a blink of an eye.
In order to anticipate market movement trends, investors must study their basic data, whether economic or financial, current or historical, to be able to anticipate its destination during the coming periods, either in the financial markets in general, or in the currency market in particular. There are two main schools for analyzing market trends, which are:
Fundamental or and Technical Analysis.
Fundamental analysis, it is also called economic analysis, and it is concerned with the study of economic and political variables that affect the movement of currencies, assuming that supply and demand for currency is affected by the strength or weakness of the economy. It drives up prices, and vice versa. In the event that the economic data is negative, and indicators of weak economic activity, decline, deflation, or stagnation appear, or even in cases of political tensions in the country that owns the currency, all this weakens the demand of buyers for it, so the supply of it increases in exchange for the demand for it, which pushes its prices to fall.
The correct fundamental analysis depends on a comprehensive study of all economic available information in order to reach a general view of the state of the economy and expect the direction of the currency in the future.
Technical Analysis:
Technical analysis is based on studying price movement through charts to anticipate future price movement directions. Technical analysis relies on the principle that history repeats itself and that all events and influences that move the market are all reflected in the price movement. Therefore, studying price movement on the chart is sufficient to predict prices. without regard to its causes.
Furthermore, sentiment analysis puts traders ' feelings and emotions into cryptocurrency price forecasts. Instead of relying solely on Market Data, cryptocurrency analysts focus on emotional trends such as panic selling or a buying spree based on public expectations and perceptions.
However, cryptocurrencies are not like stocks and cannot be analyzed using the same metrics. Since cryptocurrencies are widely unregulated assets, they are not subject to the same regulations as international companies, and therefore they do not submit any financial reports. This is, by contrast, for publicly traded companies, which often have to submit quarterly reports in accordance with recognized accounting standards. Traditional business metrics no longer represent liquidity ratios, which measure the business model of traditional companies.
Investors should look deeper and consider all of these metrics, not just blockchain activity, while these metrics don't paint the whole picture, they can give us some hints for creating indicators.
As the name suggests, chain metrics are blockchain metrics . In the case of blockchain, the best practice is to generate all the necessary metrics directly on the network, and anyone can do this by creating a new node on the network. However, if you want to extract indicators from the chain to help with future investment decisions, you don't need to create a blockchain node. Here are some of the most important metrics in the series to look at are:
1-Number of transactions:
This metric will give you an idea of the activity of the chain. However, the number of transactions can also be misleading, since a person can simply transfer the same money between two wallets, and each time it will be counted as a transaction.
2-Transaction value:
This value gives you the value of all transactions executed in a specific period. Often, networks boast about the volume of their daily transactions, but this too can be manipulated.
3-Active addresses:
This metric represents the total address used over a period of time. Note that the addresses of both the sender and the receiver are counted, but some networks offer a unique number of blockchain addresses used in a specific period.
4-Fees paid:
This figure may give a more accurate picture of the real demand of the network. The fees paid represent the expenses you pay to complete your transaction, and the sooner you confirm the transaction, the higher the fees. In the case of proof-of-work networks, fees tend to increase over time as part of the reward mechanism.
Everything is tightly woven, and the fees paid to validators or miners must be balanced with block bonus.
5-The hash rate and storage:
A higher hash rate means a more secure network and increased interest in mining, which may relate to the price of blockchain currency, an increase in transactions, and higher profitability in general. In PoS networks, the hash rate metric is replaced by the number of accumulated coins.
Analyzing encrypted financial data means understanding trading conditions, market reactions and surrounding factors. These are all useful tools for basic digital currency analysis. It can be particularly useful for estimating probabilities and planning investments. The financial history of digital currencies, as well as information about the blockchain economy, is useful information for potential investors. market value. Market capitalization is the price of all digital currencies in circulation at a given time. This measurement is the result of multiplying the current price of an asset by its total supply sold.
Besides, market capitalization is often used as an indicator of a blockchain's growth potential. Liquidity and trading volume. In any trading market, liquidity and volume are two related terms. This is because trading volume can be used to measure the liquidity of a product. High trading volumes mean increased interest in the market feeding mechanism. Each blockchain may have different supply mechanisms. This means algorithms that affect maximum supply, fluctuating supply or market inflation. All of these securities can have short-term and long-term exposure, and investors can react to them in different ways.
In fact , the market sentiment analysis, which is essentially a psychological assessment of many factors that have a significant impact on the price movement of digital assets, may help forecasters, in their attempts to predict the future price performance of digital currencies or other types of financial markets through studying market sentiments, they can understand the level of enthusiasm or lack of interest in digital currency assets. Nonetheless , they should not forget that attitudes toward financial markets are not always based on measurable data, but rather reflect the collective sentiment of the public. Market sentiment refers to how investors and traders judge the feelings and attitudes of others towards crypto assets. Financial markets do not use systematic or technical assessments to determine sentiment. It reflects the collective psychology of all cryptocurrency trading participants. This is driven by sales statistics and social media.
Predicting the price of a digital currency is not an exact science, still has no stable rules and it will take a lot of practice to begin to master the tools and indicators used by professional traders. It is a great subject to study due to the low barrier of entry and the availability of data. However, it is possible to try to predict some movements in crypto world, but the risk will be always lying somewhere.
To conclude, most of the models currently available to determine the price of cryptocurrencies cannot be relied on accurately, and it has not been definitively determined whether predicting the prices of digital currencies is a science or an art, knowing that there are those who classify it as an art because it does not depend on accurate mathematical models, but on expertise . Maybe in the upcoming years, the future crypto world would be promising , things would certainly change especially with both technological advancements and the widespread of cryptocurrency dealings all over the world without exceptions .
Thanks for taking time to read.
Resources
https://capital.com/how-to-predict-cryptocurrency-prices
https://www.simplilearn.com/crypto-predictions-article
https://www.investopedia.com/articles/07/mean_reversion_martingale.asp
