How to analyze and predict cryptocurrency rates?

Please note that these forecasts and the given mathematical formulas below are not an investment strategy and cannot guarantee desired results.

We will start, of course, with the hero of most news.

Bitcoin. According to forecasts by many analysts, the price of bitcoin might be much higher. For example, co-founder and former CEO of crypto exchange BTCC, Bobby Lee, says that "Bitcoin is currently in a bull market and could rise to 300 000 dollars based on historical trends."

And according to Morehead (CEO of Pantera Capital), bitcoin could reach 115 000 dollars per token by the end of the summer of 2021.

Pantera Capital uses a stock-to-flow model to predict bitcoin prices. It forces the company to look at the scarcity and demand for an asset to determine its potential future value. In the case with bitcoin, this can be traced back to decreasing by half, which occurs approximately every four years, according to CoinDesk.

Ethereum is a promising investment for young investors. Ether's supply is as unlimited as Bitcoin's, and its supply schedule, often described as the minimum required to secure the network, is determined by members of the Ethereum community. Most decentralized apps are based on Ethereum, and this cryptocurrency accounts for the highest percentage of total funds invested in DeFi projects. Thanks to this, its market capitalization is 148,52 million dollars.

Many crypto experts are confident that a record high Ethereum price is inevitable this year. For example, Raoul Pal, a macroeconomic expert and former Goldman Sachs employee, is quite optimistic about the future of Ethereum. Pal predicts that the cryptocurrency price could rise to an all-time high of 20 000 dollars in the current cycle.

At the moment, the cryptocurrency market is very volatile. And to make a forecast for at least a few months in advance, you need to pay attention to several types of trends. Most traders would divide them into three:

— Technical analysis
— Fundamental analysis
— Emotional analysis

I. Technical analysis. A trader studies price movements, such as trading volume and other important indicators, and based on historical activity, detects statistical trends. Such analysts usually believe that prices follow trends and history repeats itself. They use their data to predict whether a price will go up soon or not. However, it should be noted that such a forecast cannot guarantee accuracy.

II. Fundamental analysis. This is a different approach. Instead of looking at where prices are going, a trader looks at factors that influence the numbers, such as the economy or the way a company is managed, to determine the value of an asset. Such analysts exclude emotions from the process and follow the belief the market could underestimate or overestimate the value of a cryptocurrency, which would eventually lead to a rate correction.

III. Emotional analysis or analysis of investors' emotions. With this approach, traders effectively track key market players: journalists, influencers, and consumers. The essence of the method lies in the fact that technical data does not always reflect the full picture, and trends such as panic selling or a surge in purchases can be identified in advance based on public perception and expectations.

For example, since March 2020, the TOTAL index, which takes into account all cryptocurrencies, has grown by almost 1000%. We all remember what happened in March, so we will not discuss this in more detail. From April to December, the index grew at a consistently moderate pace, being in the middle zone. But then an "explosion" followed, and growth accelerated. The index moved to the upper zone, and then completely "went off the scale" above the upper line, entering the overbought state.

The fact that the market is overheated is also evidenced by the Google Trends chart:

The world is experiencing an interest in Bitcoin's growth last seen in December 2017. People see that BTC has surpassed the memorable 20 000 dollars peak twice and has potentially experienced the characteristic FOMO (fear of missing out) effect typical for such assets.

Summary. The more diverse the approach to the analysis of the cryptocurrency market, the more accurate the forecast. This simple rule also applies to the analysis of any other market of financial assets.

Despite all the seemingly capricious steps that Bitcoin takes, certain connections can be traced in its rate. Sometimes it rises when there are stocks, but sometimes it falls; sometimes people trade it the way they trade Tesla, but sometimes Bitcoin is traded like GameStop. And you can always see one reliable sign that tells you whether the rate will go up or down.

For those wondering if it's a good time to buy bitcoins, the Fibonacci sequence used by JC Parets might be helpful.

JC Parets, a technical market analyst who has also been leading a research service called All Star Charts for the past decade, has found a way to identify a pattern in the behavior of the Bitcoin exchange rate.

Back in 2017, Parets impressed many investors when he correctly predicted that Bitcoin would surpass 6 500 dollars and then rise above 7 400 dollars (a bull trend that continued at the time).

Parets figured this out by breaking down Bitcoin's price movements into segments. After the crash, if the price recovered nearly 62% and then continued to restore 100% of its previous high, Bitcoin would likely continue to grow to 162% compared to the minimum. Afterward, if Bitcoin does not return to the previous level, it will probably rise to almost 262% compared to the last minimum (because 262 is the sum of the previous two percentage digits: 100 + 162 = 262).

This led to Parets predicting in mid-December, when bitcoin was trading just below 20 000 dollars, that the cryptocurrency will reach 30 000 dollars. It indeed reached 30 000 dollars in early 2021. His next prediction was around 45 000 dollars, which happened on February 8th.

Now, with bitcoin holding above that level, Parets' next prediction is 70 000 dollars.

It's not entirely clear why this pattern works so well. At its core, technical analysis is designed to measure and predict short-term market moods, as opposed to fundamental analysis that focuses on long-term underlying value. And the Parets' Fibonacci model certainly echoes the up-and-down cycle in the cryptocurrency market.

Bitcoin also fluctuates in-between its big moves and can fluctuate above or below key thresholds. But as long as Bitcoin stays above 45 000 dollars, Parets believes there is a reason to be optimistic.

However, be careful if the situation changes: "A break below 45 000 dollars could bring it back to 30 000 dollars or below," adds Parets.

Whether or not to buy any cryptocurrency depends entirely on your financial goals. If you are still undecided, we recommend working with an expert or doing more research until you are sure that this is what you want to do.

In conclusion, we would like to note that rate analysis and forecasting cryptocurrency trends should be approached in an integrated manner, using different techniques and formulas.