Bitcoin exchange rate predictions: but is there a point!
Making bitcoin rate predictions has long been mainstream in the cryptocurrency world. Some experts have been "burying" bitcoin for years, calling it a bubble, a financial pyramid, a fraud, etc. Others, on the contrary, believe that the flagship cryptocurrency has a future, and its value will rise again.
Is it hard to predict BTC rate? There's nothing easier! Make a smart face, choose a longer timeframe and poke at any price you like, spicing up your forecast with the words blockchain, mining, SEC, bitcoin-ETF, etc. Voila, now you're a cryptocurrency expert. And if your forecast doesn't come true, well, no one is safe from mistakes.
And how is the real deal with bitcoin price forecasting, and do these forecasts make any sense at all?
What's wrong with bitcoin?
Let's compare cryptocurrency to a traditional financial asset, such as a stock. A share price prediction is based on an estimate of the company's capitalization. That is, the share price will correspond to the amount of capitalization divided by the number of shares.
The capitalization estimate is also not taken from the ceiling. For this purpose, the amount of investment in the company, the forecast of potential income, the balance of liquid assets and other fundamental indicators are used.
To this end, the legislation in the financial sphere provides for the provision of the market with all the necessary information about the company.
As a result, both stock buyers and sellers have the same set of information, which prevents the price of the asset from reacting too sharply to the news background. For example, a one-time sale of a large volume of shares would not collapse their price, but would meet a similar volume of demand to buy. In addition, such a seller would come under the scrutiny of financial regulators on suspicion of possessing insider information.
So why doesn't it all work with bitcoin?
Bitcoin has no fundamental characteristics
Decentralization, which is one of the foundations of bitcoin, plays against it in this case. Unlike stocks, it is impossible to evaluate the BTC rate based on some company's fundamentals. If we consider bitcoin as a currency, it is not subject to any indicators of the state economy, which is typical for fiat currencies.
The main fundamental indicator that is most often used in predicting the price of bitcoin is the cost of mining, which includes the price of the cryptocurrency mining equipment and the cost of electricity.
The cost of mining is is a dynamic indicator, which characterizes the complexity of the system at the current moment in time.
The more expensive mining becomes, the more miners are eliminated. Accordingly, the complexity of the system decreases, which, in turn, leads to a decrease in the cost of mining.
Only this indicator is the real fundamental basis for predicting the rate of bitcoin.
Lack of regulation and ample opportunity for price manipulation
At the moment, an effective and transparent mechanism for the regulation of digital assets has not yet been created. This creates a lot of problems. For example, try to name the current price of bitcoin. Getting ahead of ourselves, we will say that it is problematic. BTC rates are different at different exchanges. And what exactly is the exchange rate - to the dollar, to other fiat currencies, to altcoins, to stabelcoins?
It is this problem, according to the head of the SEC, that is the main obstacle to the creation of derivatives on BTC.
In addition, even on the top cryptocurrency exchanges, not to mention many other venues, there is no effective control over transaction volume. As a result, quite a significant portion of volume is "wash-trading," a type of price manipulation where a trader buys and sells the same assets to create the appearance of liquidity. By the way, wash-trading is prohibited under U.S. law. To this we can add that StablecoinsDespite its name, it has never been thoroughly audited, which casts doubt on the veracity of last year's bitcoin rally.
Because of the vast field of speculation and manipulation, it is almost impossible to determine whose influence on the bitcoin price is greater - the cost of mining and other technical factors, or the actions of the top mining pools and large cryptocurrency exchanges. After all, in order to bring down or up the bitcoin price, they only need to start volume sales or purchases of BTC. Hardly any analyst can predict that.
What's the bottom line?
Bitcoin's excessive exposure to market manipulation and the uncontrolled possibility of speculation makes the effectiveness and accuracy of price predictions BTC practically zero.
Will bitcoin drop to $1 in a month? It is quite possible. By the summer, its rate will rise to 100 thousand dollars? And this option is not excluded. Until the situation with regulation of cryptocurrency market changes, you can make any bitcoin rate forecasts - their value will be the same and will not exceed the cost of a cup of coffee you drank while making them.
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