Forecasting price fluctuations is a controversial activity. It’s not that price predictions aren’t helpful or accurate; they’re often accurate and used to make more informed decisions. However, being “predictions”, they’re not guaranteed. Moreover, given that cryptocurrencies exist in a highly volatile market, it’s all the harder to rely on these forecasts.
We need to mention that no consensus for valuing cryptos exists from the starting point. This raises a few concerns, of course. However, prospective investors can use a few methods to better understand the course of a crypto’s price changes.
In this article, we cover:
- How cryptocurrencies are valued
- The scope of crypto price predictions
- What kinds of websites and apps are used for price predictions
- Short-term vs. long-term predictions
- How you can invest with confidence in your cryptocurrency’s direction
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What Influences Bitcoin and Other Cryptocurrency Prices?
Let’s have a look at some of the factors that can affect cryptocurrency price predictions:
Supply & Demand
Bitcoin, like all cryptos, is priced based on activity. The more demand for Bitcoin, the higher its price rises. “Demand” is measured by the number of people locking in trades for more Bitcoin.
Unlike fiat currencies, Bitcoin is decentralized, meaning there is no Central Bank to set policy. Because of that, the wider community is in control of supply through mining. There’s no such thing as “inflation rates” or “monetary policy” when referring to Bitcoin. Miners mine the crypto on the blockchain at a pace they can sustain. Then, users enter the cryptocurrency market and buy.
Rising Costs of Mining
For proof-of-work protocols like those of Bitcoin, the cost of mining increases over time. The reward for mining a BTC block is reduced by 50% every 210,000 blocks. As mining continues, mining becomes more complex and less rewarding. The last halving of Bitcoin, for example, was in May 2020.
Bitcoin price is influenced by:
- The (mined) supply of Bitcoin
- Market demand for BTC
- Rewards issued to miners for their work
- Competition from other cryptos
- Regulation (insofar as it affects supply and demand)
- Any news affecting supply and demand
Can Cryptocurrency Prices Be Predicted?
In short: yes, but expert predictions vary so widely for a reason (it’s complicated).
As they relate to crypto prices, the factors listed above are well understood in the crypto community. However, co-opting these factors and creating a reliable price prediction method has proven much harder. Even for some of the most skilled and knowledgeable community leaders, this is true.
Of course, experts and analysts make digital currency price predictions and other industry trends forecasting, many of which make the news, such as the time high changes of the price of Bitcoin, Ethereum and other major cryptocurrencies that happened the past year. One of the most exciting predictions for HODLers is the conservative estimate of Bitcoin reaching $100,000 by 2023. However, more bullish estimates place the exact figure as early as the first quarter of 2022.
When it comes to these predictions, the following methods are used:
- Technical analysis
- Blockchain data analysis
While the decentralized crypto market is fundamentally different from traditional markets, standard economic factors play a significant role in the future price of crypto coins. Technical analysis requires the use of vast swaths of historical data and considerations unique to Bitcoin and other cryptos:
- Fixed Supply: Bitcoin, like many other cryptos, has a cap. Once there are 21 million BTC in circulation, mining will cease. This scarcity, which doesn’t affect fiat currencies, impacts price.
- Mining cycles: As discussed, the halving process creates a unique dynamic that also affects the price.
- Adoption to mainstream use: The story of cryptos is that of the outsider that came to be accepted for mainstream and regular uses over time. This relationship means that as Bitcoin and its underlying blockchain technology become more accepted in wider society, its prices will react. This has the effect of further speeding up price increases.
Invest in over 30 cryptocurrencies from your checking account with no trading fees with the Current mobile app crypto feature.
Titan is an investment platform with a team of experts actively managing your portfolio based on your chosen strategy, including cryptocurrencies.
Alto IRA allows you to invest in stocks, bonds, mutual funds, ETFs, real estate, cryptocurrencies, and even gold for your retirement.
Do Any Reliable Websites or Apps to Predict Cryptocurrency Price Exist?
Crypto has a lot of price trackers, but not as many that predict future prices. Most websites or apps that predict crypto prices can only do so for some cryptos. Few of these websites or apps have a large selection.
Some examples you can refer to include:
- CoinMarketCap.com User Generated Cryptocurrency Price Predictions
- Tradingbeasts.com Cryptocurrency Price Predictions
- Bitcoin Price Prediction (App for mobile devices)
- AppAnnie.com Crypto Forecast: AI Prediction
Investing in Cryptocurrency Long-term vs. Short-term
Overall, as in the traditional securities markets, long-term investment tends to beat short-term trading. That doesn’t mean short-term activity is less fruitful; for the average investor, far less risk is incurred when you’re not trying to beat the market.
Long-term
Long-term crypto cryptocurrency market investment is based on the prediction that prices will increase during a substantial period. Investments of 6 months or more are often considered easier because:
- Short-term volatility is especially daunting in crypto but is not a concern with long-term investing
- Long-term investing based on underlying fundamentals is more stable than short-term trading through violent price swings
- Expert price predictions are only applicable when looking at a more extended period
Long-term crypto investing is simpler. However, it’s still essential to make educated decisions and thoroughly understand the market you’re entering.
Short-term
Short-term trading activities are those where people attempt to profit from the short-term fluctuations in price. In cryptocurrency markets, opportunities for significant short-term gains are always present. However, becoming a proficient short-term trader is more challenging than the alternative of long-term investing.
Short-term trading is more volatile than long-term investment. Your trading activities can be suddenly interrupted by breaking news of any kind. Likewise, Crypto prices can fluctuate violently in ways that many tools cannot predict. For a long-term investor, these road bumps are less significant. This is part of why strategies such as day trading are so high-risk and are better pursued only with the proper education and tools.
Should You Invest in Cryptocurrency for Your Retirement?
One long-term use of cryptocurrency investing is retirement portfolio diversification. When looking at crypto in the long term, you’ll quickly notice two trends:
- Extreme short-term volatility as prices shoot up and down
- Extreme long-term profitability, with Bitcoin going from less than $1 to over $50,000 in less than a decade
It must be noted that crypto investing is more speculative than investing in traditional securities. A digital nest egg can be a fruitful investment if approached cautiously. The future regulatory landscape for crypto is unclear, as is its financial future. So, it’s safer to view it as an alternative that you dedicate an acceptably low part of your portfolio to.
That said, cryptocurrencies as retirement assets are becoming more accepted. In fact, you can get the same long-term savings benefits of retirement accounts with crypto as you can with other alternatives like precious metals.
If you want to diversify your retirement investment portfolio to include cryptocurrency, you need to open a Crypto IRA account.
What is a Crypto IRA?
A crypto IRA is an individual retirement account offering tax benefits for those using crypto for retirement savings. The specific benefits align with the kind of IRA you store your crypto in.
- Traditional IRA
- Roth IRA
- SEP IRA
In any case, you receive the accompanying tax shelters. You can claim tax deductions for your contributions for traditional IRAs and don’t pay taxes for appreciation while holding assets in your IRA.
