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Like regional currencies such as the US dollar, Bitcoin is a digital currency with a finite, limited supply like Gold or Silver. Since it is based on new technology and pretty nearly unregulated and borderless, it is highly volatile, featuring wild fluctuations in its purchasing power, which can happen intermittently over a short time.
Volatility is the main reason seasoned investors in traditional markets tend to be wary of Bitcoin. It is also why other investors embrace it due to its capacity to multiply profits by margins as high as 200%.
Bitcoin is the leading cryptocurrency, and its market pattern overflows to most of the other coins in the crypto market. Until the March 12 Black Thursday of 2020, Bitcoin was presumed to be an uncorrelated asset when BTC crashed and the rest of the crypto market.
Even with the ongoing global economic crisis and coronavirus outbreak, crypto analysts argue that Bitcoin fell to its worst possible in March, and the only way to go is up. The month of April has seen a collective recovery in the crypto market, and 2021 is predicted to be a good year for Bitcoin and altcoins.
There are no definite tools to predict any market as human behavior is irrational. Bitcoin does not exactly follow the conventional market trends, but here are a few key indicators to help you succeed as an investor in the crypto market.
1. Bitcoin Price Analysis
The best thing about crypto is the availability of trading information. Bitcoin enthusiasts and traders are ever keen to promote blockchain technology. You can easily find dedicated sites for how the price is moving and why it moves like that.
Two great price analysis sites are CoinMarketCap and Coinbase 360, which feature details such as market capitalization, 24-hour trading volume, circulating supply, and percentage gain or loss over short and extended periods.
To analyze past and current prices and behavior is to understand how other people feel about Bitcoin at that particular time. As long as more people continue to use Bitcoin, its price will continue to rise. In this case, you can decide to execute Hodling, a term used by crypto investors to buy and hold Bitcoin, waiting for prices to appreciate and sell when they do.
Understand that Bitcoin is not money, but rather a peer to peer electronic cash network. It is a network token that has value because people have agreed it has value. The more people participate in the network, the higher its price rises, and the more secure the network becomes.
2. Trading Charts
Trading charts represent technical analysis. Traders use them to read crypto activity on cryptocurrency exchanges, but they are one just tool among many. It is unwise to rely only on trading charts, especially since Bitcoin and the crypto market has many unique influencing factors that are not related to traditional market trends.
These charts use candlesticks to help you analyze or predict where Bitcoin’s price is in terms of Bullish and Bearish patterns. Both patterns use different candles as indicative behavior of where the market’s direction is headed.
- The bullish trend has five patterns that indicate its onset, the Three White Soldiers, Bullish Engulfing Candle, Bullish Hammer, and Piercing Line. All these are suitable indicators that point out price resistance areas.
- Bearish trends can also be tracked using certain indicators such as the Tweezer Top, Three Black Crows, Three Inside Down, Bearish Breakaway, and Bearish Advance Block. Again, these indicators can only help you if you understand the characteristics of candlesticks.
As an investor, it is wise to acquire basic candle trading skills as they can tell you at a glance how other traders are investing in the market and its response to immediate or prolonged changes.
Major exchanges like Binance and Coinbase are happy to offer free classes to traders, and this would be a great place to polish up because blind trading is an excellent way to lose all your money in crypto trading.
3. Crypto Whales’ Influence on Bitcoin Prices
Crypto Whales are ‘Hodlers’ with enormous amounts of Bitcoin or other cryptocurrencies in private addresses or exchanges. They have the power to manipulate prices and the market view of cryptocurrencies in what is commonly referred to as a pump and dump scheme.
For example, a crypto whale might flood an exchange with a coin and decide to sell cryptocurrencies using different addresses. This creates the illusion of more supply than demand, and it drives prices down. Once prices start to lower, other traders will hurry to sell to avoid further loss. The whales then buy at the dip and make profits at the expense of such traders.
On the other hand, a trader may influence prices by buying many cryptocurrencies at once, creating the illusion of high demand. This raises prices and triggers investors to buy, hoping prices will go up.
The crypto whales then sell high again, flooding the market and leaving some traders with overpriced assets. This is a rare occurrence in the traditional market but very common in crypto markets, and whales can get away with this due to little or no cryptocurrency regulation.
Some of the biggest whales are individuals, hedge funds, groups of investors, and exchanges themselves. Paying attention to what crypto whales are doing is a good way of getting past smoking mirrors in crypto trading.
One of the best sites to stay updated on crypto whales is Whale Alert, which also issues alerts when blockchains mint more tokens or move huge amounts of funds out of their treasuries into exchanges or private addresses.
4. Bitcoin Halving
May 2020 is a significant year for Bitcoin miners and investors as the network will undergo its third halvening event, which traditionally rallies up prices before and after the event.
Miners are getting ready, and people are buying to hold, waiting for the prices to go up after the halvening. Bitcoin prices are already rallying up, and higher hashrates have been recorded as more people participate in the network.
The halvening period is always a good entry point for most investors and has, in the past, proved to be very profitable. Many investors will either hodl for a long time or sell at the peak of the halvening influence.
The term decentralized comes up often while talking about crypto, but most people do not know that major crypto exchanges are centralized, much like traditional markets. Developers are working on decentralized exchanges (DEX’s) infrastructure, but adoption is still far from being achieved.
DEX might solve at least one problem by lessening crypto whales’ power on exchanges since transactions will be direct without a third party’s involvement. However, the crypto market’s future will mostly be influenced by people’s perception of cryptocurrencies and the regulatory framework needed in the market.