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However, while there are several ways you can read the market trends and make your educated guesses on what will happen next (and how much certain cryptos may cost), these methods don't necessarily work for every cryptocurrency. While many traders continue to use these tried-and-true methods successfully, other traders look for new ways to predict the future price of various digital currencies. Below we've laid out some methods used by experienced BitIQ analysts which can help you get started at quickly understanding how to analyze bitcoin prices.
Preparing the Ground for Bitcoin Analysis: Some Basic Tools
Before we get into specific strategies and methods, it is important to have a couple of prerequisites in place which will ensure that your analysis will be effective. First, having an up-to-date news feed is a must! You might think that this goes without saying, but bear with us. In order to effectively track market trends with cryptocurrencies, there are several things you need to know about what's going on with them in general. This includes knowing the major market players and the current issues they may be facing which could affect pricing in some way or another. While most major newspapers typically won't cover this sort of information, a lot of it is widely published online. So, make sure to keep up with the news and find a site or group that can give you regular updates about major market-moving events in the cryptosphere!
The second prerequisite for bitcoin analysis might come as more of a surprise, but it's crucial if you want to be successful: you need at least some basic knowledge of how cryptocurrencies work! This might seem like an odd thing to suggest, but unless you understand proof of work, transaction fees on the blockchain network, wallets and cold storage solutions, then there are several market moves that will go right over your head. For instance, knowing what affects block size (and why) will help you unearth opportunities where you can either capitalize on the block size increase or keep your money safe when a decrease in BTC value is expected due to a smaller subsidy.
Even if you're only buying and holding bitcoin, it's worth your time to invest in learning enough about how cryptocurrencies work that you'll be able to understand market trends quickly and effectively. This will help you become more efficient with your trades!
Fundamental Analysis:
Most of the time, people who use fundamental analysis for bitcoin do so because they wish to identify the currencies which are most likely going to have a huge spike in price over the next couple of weeks, months or years. On some level, all investments speculation on future events, but the catch with fundamental analysis for bitcoin is that you're not just trying to guess which currency will go up or down in value. Rather, you are trying to determine the underlying forces which might drive future pricing changes.
Here's a very simple example of how this works: let's assume Person A believes interest rates are about to increase while Person B thinks interest rates are about to decrease. Person A will buy gold while Person B will buy silver because Person A anticipates that there will be more demand for gold if interest rates do go up, but Person B anticipates that silver will be worth more if interest rates fall. By looking at the charts and comparing the numbers, investors can quickly get an idea of whether they should invest in XRP, Ether, bitcoin or something else entirely.
Technical Analysis:
Most people who use technical analysis for financial planning do so because they believe that numbers are objective and not subject to human biases. In fact, there is a school of thought in statistics that suggests it's impossible for humans to make decisions based purely on instinct since we're all too easily influenced by our subconscious reactions. To this end, a lot of people prefer to rely on charts which show various historical data about specific currencies going back as far as possible – ideally, at least five years. This allows investors to understand how much certain currency pairs have changed over time and can give them an idea as to whether those changes were justified by market trends.