How to predict cryptocurrency prices for 2024? A beginner's guide

Forecasting cryptocurrency prices can be challenging, but there are methods to uncover valuable insights and seize market opportunities ahead of time. In our guide, discover effective strategies for predicting cryptocurrency prices, understand the factors influencing price movements, and learn how to make informed investment decisions to capitalize on the dynamic crypto market.

What influences cryptocurrency prices? Exploring 5 vital factors to take into account

Comprehending the impact of market dynamics and external elements on cryptocurrency values is essential for enhancing the accuracy of cryptocurrency price forecasts. These influences may originate from within the crypto realm or stem from macroeconomic conditions.

1. Tokenomics

Tokenomics, a fusion of "token" and "economics," delves into the dynamics of supply and demand within a cryptocurrency ecosystem, influencing cryptocurrency valuations.

Every cryptocurrency project tailors its tokenomics to align with its unique value proposition. For instance, Bitcoin (BTC) features a limited supply and diminishing inflation rate, appealing to individuals seeking an inflation hedge and a store of value asset.

On the other hand, Ethereum's (ETH) functionality for gas fee payments, staking, loan collateralization, and various decentralized finance (DeFi) applications contribute to the demand for the token.

Cryptocurrencies with robust tokenomics, such as BTC and ETH, draw investment, leading to upward price movements. Tokenomics plays a crucial role in crypto fundamental analysis.

2. Value proposition

What attributes make a cryptocurrency project worthy of investment? What distinguishes one crypto token as a superior investment over another? The answer may hinge on the cryptocurrency's value proposition.

Value proposition, by definition, refers to the advantages that a company, product, or service provides to its customers.

In the case of Bitcoin, its value proposition lies in its role as an inflation hedge, its high level of decentralization and security, and its peer-to-peer payment network.

Conversely, Ethereum's value proposition stems from its status as the leading smart contract platform globally and its hosting of popular decentralized applications (dApps).

Meanwhile, L1 blockchains like Solana's (SOL) value proposition lies in addressing issues encountered by larger competitor Ethereum, such as exorbitant gas fees and limited throughput.

In other instances, specialized platforms like decentralized GPU computing marketplace Render (RNDR), decentralized exchange Uniswap (UNI), and data availability layer Celestia (TIA) focus on providing tailored products and services.

3. Token vesting and unlock schedules

Investors in the cryptocurrency space need to be mindful of token vesting and unlock schedules. When a cryptocurrency project is established, the development team, early backers, and founders typically receive a substantial portion of the newly generated tokens as compensation for their contributions.

Tokens allocated to project insiders are placed within a vesting smart contract, which is programmed to gradually release vested tokens at predefined intervals. Vesting tokens are released incrementally to control their circulating supply, mitigate selling pressure, and provide support for potential value appreciation.

The unlocking of vested tokens can lead to a significant increase in the circulating supply. Should members of the project development team, early backers, or founders decide to sell their tokens on the open market, it can potentially result in a decline in the cryptocurrency's price.

4. Investor sentiment

Investor sentiment denotes the collective outlook of investors. Financial markets are heavily influenced by human emotions, such as fear and greed. Often, these emotions drive investors to make irrational decisions, leading to dramatic price surges and sudden market downturns.

During bullish market conditions, cryptocurrency prices may rise without a specific market catalyst. Conversely, bearish markets typically exhibit decreased investor interest and stagnant cryptocurrency prices.

Experienced investors often develop an intuition for interpreting market sentiments, allowing them to diverge from the crowd and capitalize on irrational investor behavior.

5. Market listings

Cryptocurrency tokens have demonstrated a tendency to experience price surges preceding their listing on popular centralized exchanges like Binance and Coinbase.

Centralized exchanges possess the ability to attract a surge of new investors and capital to cryptocurrencies yet to be listed. These platforms offer user-friendly interfaces that enable non-crypto-native individuals to purchase cryptocurrencies using traditional payment methods like debit/credit cards.

Delisting of tokens typically has adverse effects on their prices. A cryptocurrency token may be delisted due to regulatory concerns or security vulnerabilities.

How can one forecast cryptocurrency prices effectively? Best 5 crypto analysis methods to use

Crypto technical analysis: Signals and formations

Technical analysis entails scrutinizing historical market data, predominantly price and volume, to anticipate forthcoming price shifts. Analysts operating within this framework assume that all available information is already factored into prices, which follow trends likely to persist (until they don’t).

At the heart of technical analysis lies the notion that past price movements serve as the most reliable indicator of future trends. Price and volume charts, including bar charts, line charts, and Japanese candlestick charts, constitute the primary tools used in crypto analysis.

Technical analysis holds particular relevance for cryptocurrency price prediction due to several factors:

• Elevated volatility: Crypto markets exhibit pronounced volatility, with prices experiencing significant swings over short durations. This volatility often generates discernible price patterns and trends that technical analysts can exploit.
• Reduced institutional influence: Compared to traditional markets, cryptocurrencies witness fewer institutional traders, resulting in price movements that are less predictable and more susceptible to emotional trading—a milieu conducive to the application of technical analysis.
• Speculative environment: Cryptocurrency valuations eschew conventional metrics like company earnings or P/E ratios, rendering technical analysis a more suitable instrument for speculation.

Analysts leverage various technical indicators and chart patterns to forecast future price movements. For instance, moving averages, the relative strength index (RSI), and the moving average convergence divergence (MACD) assist in identifying crypto trends and momentum.

Similarly, chart formations such as double tops and bottoms, triangles, head and shoulders patterns, and flags offer insights into potential continuations or reversals of prevailing price trends.

Applying technical analysis to Bitcoin (BTC/USD)

To illustrate the implementation of technical analysis in cryptocurrency markets, we can examine the price movement of Bitcoin from its previous peak in 2021 to March 2024, when it achieved a new all-time high (ATH).

The chart above utilizes a logarithmic scale, which represents price fluctuations in percentage terms rather than absolute values. This approach aids in comparing relative movements across various timeframes more efficiently.

1. The previous all-time high, observed near $60,000 in 2021, acted as resistance upon its second test, forming a double top pattern.
2. Following a successful initial test, support at approximately $30,000 was breached.
3. The price reached its nadir in late 2022 following a bullish RSI divergence.
4. Subsequently, the price retraced approximately 50% from the lows before consolidating below $30,000, which had transitioned from support to resistance.
5. The price then tested, surpassed, and subsequently re-tested the 61.8% Fibonacci retracement level of the decline witnessed between 2021 and 2022, along with breaching the RSI overbought threshold of 70.
6. Ultimately, the price fully retraced 100% of its decline to reach a new all-time high.
7. Utilizing the 161.8% Fibonacci extension, the next long-term price target stands at approximately $170,000.

Crypto Fundamental Analysis: Macro Trends and Cryptocurrency Specifics

Fundamental analysis within the cryptocurrency sphere entails assessing the intrinsic value of a coin or token by considering economic, financial, and other qualitative and quantitative factors.

Essentially, it involves asking the question, "What is the true value of this cryptocurrency?" and subsequently evaluating whether the current token price aligns with this assessment.

In contrast to its application in traditional stock markets, where analyses may focus on company earnings, dividends, or industry conditions, crypto fundamentals typically revolve around two distinct sets of indicators.

Macro Influences

These encompass the same types of data sets, spreads, and intermarket factors analyzed by macro fundamental analysts in bond or forex markets.

• US dollar strength: Cryptocurrency values often exhibit an inverse relationship with the strength of the US dollar. A weaker dollar may enhance the attractiveness of cryptocurrencies as a store of value.
• Global inflation rates: Inflation rates can impact crypto prices as higher inflation tends to devalue fiat currencies, thereby increasing the appeal of hard digital assets like Bitcoin.
• Liquidity: The concept of "liquidity" is subject to debate among economists concerning its definition in financial contexts. Broadly, high liquidity implies easy access to investment funds and greater risk tolerance, fostering increased interest in high-risk assets like cryptocurrencies. Conversely, low liquidity conditions may have the opposite effect.

Specific cryptocurrency fundamentals

Crypto analysis encompasses unique data sets exclusive to cryptocurrency prediction, unfamiliar to traders from conventional financial markets, necessitating additional exploration.

• Adoption: Metrics indicating broader adoption, such as partnerships with established companies or integration into payment systems, serve as indicators of increasing utility and value. This factor arguably holds the greatest influence on the medium-to-long-term trend in crypto markets.
• Network activity: This category includes metrics like transaction volumes, active addresses, and network fees. Elevated network activity signifies a robust and utilized blockchain, potentially driving up demand for its native currency.
• Hash rate: The aggregate computational power employed for mining and transaction processing reflects the network's security and growth potential, thereby influencing investor confidence.
• Tokenomics: The supply mechanics, such as maximum supply or burning mechanisms, exert a profound impact on a cryptocurrency's value. Limited supply coupled with rising demand can spur price appreciation.
• Development activity: The dedication and progress exhibited by a project's development team serve as pivotal indicators of its long-term viability and success.

AI price prediction models now accessible to retail traders

The utilization of AI-driven cryptocurrency price prediction models is on the rise, driven by the intricate nature of generating precise crypto forecasts. These cutting-edge prediction models leverage natural language processing (NLP) and machine learning (ML) systems, trained on extensive datasets comprising historical crypto prices, real-time news events, social mentions, and on-chain data insights.

Today, rigorously tested AI-based prediction models empower market trading strategies, enabling the generation of predictive yields tailored to users' risk preferences. Moreover, the absence of cognitive biases and emotion-free processes are recognized as significant advantages of AI-driven trading strategies and price prediction models.

Interestingly, the blockchain industry's global and open-source nature has facilitated retail investors' access to AI-powered prediction models, which were previously exclusive to institutional investors.

On-chain analysis for real-time market response

Public blockchains like Bitcoin and Ethereum offer transparency, enabling real-time monitoring and verification of transaction histories. This transparency has empowered analysts and investors to scrutinize market trades, investor behaviors, and peer-to-peer interactions like never before, leading to more robust cryptocurrency price prediction models.

Navigating fear and greed through sentiment analysis

Sentiment analysis involves examining investor emotions and opinions regarding a particular cryptocurrency or the overall crypto market.

The fear-and-greed index serves as an excellent starting point for sentiment analysis in the broader crypto market. This index is a valuable tool for crypto prediction, aiming to assess whether assets are appropriately valued at any given time.

The index operates on the principle that extreme fear typically depresses asset prices, whereas extreme greed drives market prices higher.