Cryptocurrency prediction is a method of analyzing factors that influence the price of a coin or a token to speculate the future price. Cryptocurrency prediction isn’t always accurate and always regarded as “Not a Financial Advice” or “NFA” in an acronym. Cryptocurrency prediction has been practiced right since the beginning of cryptocurrency. Predicting cryptocurrency prices is absolutely essential for traders because it alerts traders and long-term investors about the best time to enter the market and buy a cryptocurrency (taking a long position), the best time to sell a cryptocurrency (taking a short position), and the best time to hold a cryptocurrency to maximize profit.
Fundamental Analysis in Cryptocurrency Prediction
Fundamental analysis is used to analyze the external influences including local and international factors, as well as political and economic factors that affect the price of a cryptocurrency. Fundamental analysts use these factors to predict the future price of a cryptocurrency. Fundamental analysis is essential in cryptocurrency prediction, the cryptocurrency market is volatile and is influenced by a lot of external factors. Inflation of popular currencies like the USD and regulatory pressures from countries has a significant impact on the price and future price of cryptocurrencies. Investor sentiments are also a fundamental factor that affects the price of cryptocurrency and this is also used by analysts that predict cryptocurrency prices. Predicting cryptocurrency's future prices is very difficult and mostly unreliable due to cryptocurrency volatility. There are several factors that fundamental analysts use to predict the future price of a cryptocurrency. Some of these factors considered are:
1. Project Viability
Project viability is an important factor to consider when predicting the future price of a cryptocurrency. There are thousands of cryptocurrency projects that lack utility in a long run. A project roadmap is also very essential in determining the viability of a cryptocurrency project. It is important to note that the value of cryptocurrencies is determined by the level of community involvement, which is influenced by the viability of the cryptocurrency project. In cryptocurrency prediction, emotions fall under the category of Fundamental analysis, if a project is perceived to be unviable, investors and traders take their money out of a project, and the price crashes. We'll discuss more on how fundamental analysis is used in cryptocurrency prediction in the next section.
2. Cryptocurrency Utility
Project utility is another important factor that influences the price of a cryptocurrency. Cryptocurrency projects without utility cause the cryptocurrency price to be very volatile and this influences cryptocurrency prediction. For example, transactions in the Ethereum ecosystem cannot be completed without the use of Ether (ETH), the native token of Ethereum as a transaction fee. This provides Ethereum with massive utility and adoption due to the size of the Ethereum ecosystem, as well as the massive use-case of projects in the Ethereum ecosystem.
3. Cryptocurrency Supply
The supply of a cryptocurrency is another factor that influences the price of a cryptocurrency and this metric is used for cryptocurrency prediction. The supply of a cryptocurrency is the total number of cryptocurrency coins in circulation. There are three terms relating to supply, The total supply, the fixed supply, and the circulating supply. The total supply is the number of coins currently mined and circulating, plus coins previously in circulation and lost coins. The fixed supply is the maximum number of coins that can ever be in circulation, this is hard capped and can never be inflated or deflated after deployment. The circulating supply is the total number of coins currently in circulation. A cryptocurrency's supply should not exceed its demand. Bitcoin has a total supply of 21 million and a hard-capped supply, which means that the supply of bitcoin can never exceed 21 million. This increases the purchasing power of bitcoin due to scarcity. The greater the demand for a cryptocurrency with a limited supply, the greater the value of each coin. All these metrics are considered in cryptocurrency prediction.
4. Cryptocurrency Market Capitalization
Cryptocurrency market capitalization or “Marketcap” is another factor to consider in cryptocurrency prediction. Market capitalization is the total value of all tokens mined and in circulation. The total number of mined coins multiplied by the price of each coin equals the cryptocurrency market capitalization. This is another important metric used to predict the future price of a coin.
Other factors fundamental analyst use in cryptocurrency prediction is the community size and how optimistic the community is, the community involves the traders and the investors as well. An active community tends to grow into a big community which influences the price positively.
The crypto project’s leadership team is another factor considered by fundamental analysts, the prospects of the team, and the past milestones accomplished. Cryptocurrency listing on big exchanges also has a significant influence on cryptocurrency prediction as this gives the cryptocurrency more trust and popularity for traders to trade. Big exchange listings influence the cryptocurrency trading volume and the higher the cryptocurrency volume the higher the price.
Partnership with trusted institutions is a factor that influences the price as well as the latest news surrounding a cryptocurrency. All these are used by fundamental analysts in cryptocurrency prediction.
Technical Analysis in Cryptocurrency Prediction
The study of statistical trends based on indicators such as historical price movements, patterns, and price charts is known as technical analysis. Technical analysis is one of the popular techniques in cryptocurrency prediction. A technical analyst considers a cryptocurrency's historical price data and uses this data to predict the cryptocurrency's future price. Candlesticks are used by technical analysts as a yardstick to measure price changes over time, and these price changes are used to forecast future prices. Cryptocurrency prediction is done with both technical and fundamental analysis.
In summary, cryptocurrency prediction is very important to traders and long-term investors, this alerts traders and long-term investors about the best time to enter the market and buy a cryptocurrency and also the time to sell. Cryptocurrency prediction is always regarded as “not financial advice” because it can be completely wrong and a trader can lose his investment. It is very important for traders and crypto enthusiasts to do deep research before following cryptocurrency prediction websites. We can analyze the market with the metrics above and make trading decisions on our own risk.