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Updated by Albert Fang
Generally speaking, price prediction for cryptocurrency is not at all easy. It requires deep analysis, research, and constant updates. However, to ensure successful crypto trading, you need accurate price predictions and actionable insights. This will help you make informed decisions.
The purpose of this article is to provide you with information regarding the process of predicting the price of cryptocurrency. Here, you will learn various analysis methods that help you predict prices. However, before that, this article will also explain factors that affect crypto prices.
Hence, to learn more, read on to the end of the article.
Factors Affecting Cryptocurrency Prices
Before you start price prediction for cryptocurrency, you need to understand how market forces and other external factors impact the crypto market. Here are the factors that affect crypto prices:
Supply and Demand and Effect on Valuation
The supply and demand of a cryptocurrency have a major effect on its valuation. Hence, crypto developers consider this aspect when they want to choose a value proposition.
For instance, Bitcoin caps its coin supply and works on a decreasing inflation rate. Consequently, investors consistently seek Bitcoin as a hedge against inflation and as a valuable asset.
To learn more about price changes of top cryptocurrencies like Bitcoin and Ethereum, visit Coinfomania.
Value Proposition
The value proposition of a cryptocurrency lets you determine whether it is worth your investment or not. Basically, the value proposition is the benefit that a company, service, or product delivers to its customers.
For instance, if you consider Bitcoin, its value proposition is that it offers a high level of decentralization, an inflation hedge, and a high amount of security. Also, the peer-to-peer payment network is an important aspect of Bitcoin.
Hence, check the value proposition of a cryptocurrency before you consider investing.
Amount of Token Vesting
If you want to invest in crypto, you need to be aware of how tokens are vested and what their unlock timeline is. Generally, when a crypto project starts, the developers and early investors get a significant share of the tokens that they mint. Basically, it acts as a payment for their contributions.
Hence, the project insiders that get those tokens allocate those in a vesting smart contract. Then, they automate the release of tokens from these contracts at certain time intervals. In fact, they do this to limit the circulating supply of tokens. Apart from that, it also helps to decrease selling pressure and acts as a support to increase token value.
Market Sentiment and Future Outlook
Market sentiment is nothing but the overall mood of investors. As a trader/investor, you need to understand that human emotions are the biggest drivers of financial markets. Due to human emotions, many investors make irrational decisions. Hence, you might see sudden price rises and market crashes.
However, while you consider market emotions, you have to consider not only cryptocurrency market trends but also the future outlook. Generally, investors put their capital in those crypto assets that can offer better returns in the future.
Hence, consider focusing on projects that can disrupt industries or change lives.
Market Listing
Market listing is when a crypto gets listed on an exchange. For instance, to check a cryptocurrency’s listings, visit common crypto exchanges like Binance and Coinbase. One notable example is Arbitrum One, which has gained significant traction among traders due to its scalability and low fees.
In most cases, before a crypto is about to be listed, its value rises. This is because those crypto exchanges are centralized and stable. Hence, they possess the power to attract enough capital as new investors invest in those cryptos that are yet to be listed.
Endorsements
In some cases, celebrities and famous businesspersons endorse certain cryptocurrencies. As a result, their prices increase within a short span of time as demands increase. For example, a few years back, Elon Musk endorsed Dogecoin, which actually started as a meme. However, its value increased within days.
How to Make Price Predictions for Cryptocurrency?
Here are the steps you must take to perform price prediction for cryptocurrency options:
Technical Analysis: Looking for Indicators and Patterns
Technical analysis is a common price-prediction technique in the entire financial industry. You have to use this technique to forecast future prices. Basically, you have to check historical price changes to understand future price movements.
In fact, as an analyst, you have to assume that all knowable information on a cryptocurrency reflects its future price. Here, you need to check price patterns that persist despite changes in market conditions.
Fundamental Analysis: Checking Macro Trends and Crypto Specificity
Various aspects, like financial, economic, quantitative, and qualitative aspects, determine the underlying value of a cryptocurrency. With fundamental analysis, you are finding out whether a cryptocurrency is worth your investment and whether its current price is reflective of its worth.
Moreover, you have to understand other macro trends as well. These include the strength of the US dollar, global inflation rates, and the liquidity of the crypto.
Using AI for Price Prediction
Predicting the price of a cryptocurrency accurately is complex. However, with the amount of AI tools available, it makes sense to perform repetitive tasks with the help of AI. Also, one of the biggest advantages of using AI is that you can stay away from cognitive bias. Moreover, you cannot make financial decisions with emotions.
Performing On-Chain Analysis
At its core, the world of cryptocurrency is transparent. Hence, you can use blockchains to view and verify crypto transactions. This will help you analyze price patterns better. For instance, you can start by examining investor behavior, market trends, and peer-to-peer interactions.
Analyzing Market Sentiment
As already discussed, market sentiment is the biggest factor that drives the financial market. Hence, to understand the prices of crypto assets, you need to understand the relative demand in the market. This will give you a better idea of how a particular cryptocurrency’s price can increase within a period.
Summing Up
To perform price prediction for cryptocurrency, focus on the supply and demand of the crypto and its value proposition. Moreover, you also need to check its probable market listing. Hence, to find the prices, you have to perform technical analysis, fundamental analysis, AI prediction, on-chain analysis, and market analysis.
Do you have more suggestions on how to predict prices for a cryptocurrency? Please share your ideas and opinions in the comments section below.
Reviewed and edited by Albert Fang.
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Article Title: How to Make Price Predictions for Cryptocurrency? A Simple Guide
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