Everyone who follows the crypto industry closely is familiar with this phenomenon: a prominent figure, whether a key developer or a successful crypto investor, makes a bold prediction about the price of a cryptocurrency. Sometimes these predictions come to pass, but in many instances they never come to fruition.
Let’s be honest: there are many moments in life where almost everyone wishes they had a crystal ball to look into the future. It’s a universal desire for certainty and control, which is just as strong in the context of cryptocurrency. Knowing where the market is headed next would help soothe anxiety in a market characterized by intense volatility and better equip investors for what’s to come. Unfortunately, that’s not possible. Not in everyday life nor in the crypto space. So, does this mean you should never trust a crypto price prediction? Not necessarily, but it’s wise to approach them with a healthy dose of skepticism.
Are Crypto Price Predictions Just Hype?
More often than not, crypto is overhyped by notable figures who are heavily invested in digital assets or who want to profit if prices rise. Many of the crypto predictions you come across online are highly biased and speculative, so trusting them blindly is a risky move. In the case of publicly traded companies, for example, investors rely on various metrics for future forecasts, such as cash flow and earnings per share. However, cryptocurrencies operate differently. They lack traditional cash flows and earnings, so it’s not possible to use the same metrics to analyze them. Their value is largely at the mercy of supply and demand, and forecasting is quite a struggle.
Notably, many media outlets seek to be the ones that were in the trenches with investors. To be the first to make a bold stance about where the market is headed is quite a big deal, so when there are speculations about a development, it’s quickly disseminated to the masses. Here’s a good example. Back in October 2023, an employee at an outlet posted online about a Bitcoin Spot ETF (which many brokerages, investors, and financial management firms had been pressing for). The price of Bitcoin spiked over $2,000 over several hours, but it quickly dropped when fans figured out it wasn’t true. Moral of the story? You shouldn’t trust crypto price predictions without verifying them from various sources.
Why Is It So Hard to Predict Crypto Prices with Complete Accuracy?
A quick answer to this question is that crypto’s existence is relatively short compared to that of conventional assets, which have been around for centuries. Without enough historical data, there really isn’t much to base predictions on, and observing clear patterns and cycles can’t yield profound insights. So, what remains is to speculate based on what’s happened in the previous years.
Crypto prices can fluctuate wildly within minutes or hours, driven by several factors. For example, the overall mood and attitude of investors toward a specific project (or the market as a whole) can drive prices up or down. If there’s positive news in the market, whether about tech upgrades or institutional adoption, prices tend to reach new heights, while negative news, like regulatory crackdowns, causes panic selling among investors. Also, it’s worth noting that every coin has its own rules around supply. And these rules need to be taken into account. Bitcoin, for instance, has a fixed supply of 21 million, which makes it feel valuable.
When demand increases, but supply does not, the price of the coin explodes as expected. Some digital currencies issue new tokens gradually over time, a process known as an emissions schedule. Suppose the schedule changes unexpectedly, and traders get jumpy; naturally, this is followed by price volatility. This list could go on, but you probably get the idea. There are external forces that determine the state of the crypto market, and these forces are uncontrollable, which makes it nearly impossible to make an accurate prediction about crypto.
Is There a Way to Build a More Reliable View of The Crypto Market?
It may not be possible to make predictions that are 100% accurate, but that doesn’t mean you should give up altogether on trying to understand where the market is headed. In fact, it helps to do so in order to be prepared. You can take a multi-pronged approach, which means using various methods to assess the future direction rather than relying on a single perspective. For example, a combination of on-chain metrics, sentiment analysis, and traditional econometrics is usually more effective at improving accuracy.
It’s also wise to dig beneath the surface before you choose a cryptocurrency to invest in, as this will allow you to understand what truly drives its value. It’s about focusing on the “why” behind a project’s potential. What should you look for, you may ask? The whitepaper is a good starting point, as it outlines the project’s vision, goals, and details, and whether it solves a real problem and is feasible. Also, who’s behind the cryptocurrency you’re interested in? What is its expertise and past accomplishments? And what about the technology behind it? Is it a blockchain like others, or does it come with something unique? All these elements matter when evaluating the substance of a project.
The Bottom Line
Crypto predictions can provide insights into the future, but they come with limitations, and you should definitely not treat them as absolute truths, because that will put you in a very risky situation. In this market, uncertainty is truly the only certainty, and the sooner you accept this, the better. Rather than predicting every single wave, it’s best to focus your energy on riding them with understanding and discipline and maintain a level-headed approach. And how do you do that? With the help of techniques and tools like position sizing, dollar-cost averaging, stop-loss orders, and diversification. And of course, keep an eye on long-term goals when a coin experiences short-term instability, because this is what will keep you grounded.
