Technology and ease of use have become the most successful modern blend. It has given people a reason to think out of the box and create innovative things and systems. Cryptocurrencies are one such innovation that has created a massive impact on people.
These currencies are traditional currencies in the digital form operated by supercomputers using blockchain technology. These coins are more secure, which gives an added advantage of being the future currency. However, there are many complexities in understanding these digital currencies.
One of these things is the price of crypto. Many people step back from trading in cryptocurrencies due to their high volatility. But there is an option of predicting or forecasting the price of the digital currencies.
Many beginners think it is difficult or nearly impossible to predict crypto prices. But it is not true. A person can use various techniques to forecast the future prices of a cryptocurrency. The simplest way is to follow daily news from various reputed platforms like OKX. They can view the trends and comprehend future prices from the market factors.
3 Important Ways To Forecast Crypto Prices Effectively
The following section gives a detailed guide on the three most valuable techniques or tools to predict the future prices of different cryptocurrencies.
1. Fundamental Analysis
Fundamental analysis is a technique to analyze and predict the crypto prices considering the intrinsic or real value of the currency, factors affecting price, market conditions, and many market conditions.
In this technique, a person calculates the intrinsic value of the digital currency. On valuation, it is compared with the current market price. This comparison helps in finding whether the asset is undervalued or overvalued.
This tool is helpful when a person is looking at a broader picture and wants to forecast the prices based on qualitative factors. It derives a cause-and-effect relationship between different factors and price fluctuations.
While predicting the prices, there are majorly two approaches adopted – top-down and bottom-up. The former lays emphasis on evaluating external and broader factors like economy phase, interest rates, inflation, employment rate, and GDP.
On the other hand, the bottom-up way considers microeconomic factors like a company’s internal factors, revenue system, etc. In the crypto world, different factors include market capitalization, community size, demand, supply, government rules & regulations, trading volumes, etc.
The significant advantages of fundamental analysis of cryptocurrencies include:
• It enables traders to get information about both internal and external factors affecting crypto prices.
• This analysis tool allows users to find the actual or intrinsic value of the digital currency.
• It provides flexibility and freedom to make decisions.
2. Historical Data & ARIMA Model
Historical data involves analyzing the past data using different models to arrive at future crypto prices. It is more logic-based than other techniques like fundamental analysis. One of the most widely used and accurate models of this price prediction technique is the ARIMA model.
The Auto Regressive Integrated Moving Average considers prices of the past particular number of days and forecasts the price on the basis of seasonality, trend, and abnormalities in the market.
The moving average is calculated after taking various errors in the formula. The p-value further helps in understanding the data trend. The technique fixes one variable, which is dependent, and monitors the changes when other variables are changed.
It primarily takes three components to measure the behavior or trend. These are the number of lag observations, frequency of differenced observations, and the moving average. However, this technique assumes that the past prices or values of cryptocurrencies have some impact on the current and future prices of crypto.
3. Deep Learning
Machine learning and deep learning have provided a technological way of predicting future crypto prices accurately. It combines data patterns and comes up with numerical conclusions. It uses the LSTM (Long Short-Term Memory) system that considers various parameters and factors such as window length, number of neurons, among various AI factors.
After performing the operations, a person uses a metric for evaluating the errors and helps in foretelling the crypto rates at a future date. The most common metrics include Mean Absolute Error (MAE) and Root Mean Squared Error (RMSE). The most crucial advantage of this technique is that it shows real-time analysis of actual and forecasted prices.
Which Method To Choose For Predicting Prices
Developing technology and budding creativity have promised various new ways of analyzing and forecasting the price movement in cryptocurrencies. From the ways mentioned above, the selection of the tool depends on the trader.
If a person looks for price prediction where the market is highly unstable due to market conditions, they should go for fundamental analysis. On the other hand, considering quantitative data will be ideal for getting justified predictions.
The crypto market is highly unstable and dynamic. It is affected by numerous factors due to the low volume of traders. As the number of traders increases, the volatility will decline. But even after these factors, the price of a cryptocurrency will remain a questionable factor.
Due to this unusual market behavior, people refrain from holding digital currency for a long time. Accurate price prediction is the only way to sustain the adversities of the crypto market. It requires intensive research and planning before launching into the forecasting process.
People should understand the state of the economy as holding assets in a poor economy can be unpredictable. The other factor to track before forecasting the price is the demand and supply of particular coins like bitcoins, Ether, etc. These different factors combine and present a holistic view of the crypto chain.