The recent plunging behavior of Bitcoin has worried the investors that whether the currency is going to make up for the losses of the assets or not. The recent info-graphic of the overall coin market show that Bitcoin has depreciated again today with a negative growth factor of -2.6% and is is trading under $6,400 at press time.
The reason for the continuously plunging prices apparently is the postponement of the ETF decision by the SEC. The investors are skeptical about the decision and do not see any signs of the approval of the proposal anytime soon. The Pantera Capital CEO said in an interview with CNBC:
I still think it will be quite a long time until an ETF is approved. The last asset class to be approved for ETF certification was copper, and copper has been on earth for 10,000 years.
The story of the ETF rejection isn’t anything new, SEC has rejected several attempts by different parties due to the potential of fraudulent activities that can take place, including the recent try by Winkelvoss brothers. According to Dan Morehead, the cryptocurrency hedge fund manager the chances of the ETF to get approved are remote,
The ETF rejection is the same story we’ve had for five years. The SEC has been very cautious with an ETF.
Not only has the ETF a role to play, but the currency has seen dramatic surges and plunges over the past year, including the incident where it hit its all time high $20,000 and then moved into the $6,000 range. The question that arises is that what is the best time to invest in the digital currency?
To address the problem of analyzing the volatility of the market, economists from Yale university have made a detailed report that point out the factors on which the price of the cryptocurrency depends. Although we can’t predict the price of bitcoin based on the previous history trends but the tentative factors that can help predictions of the bitcoin’s next move are highlighted in the report.
Momentum of the cryptocurrency
Momentum is the most common factor through which the investors predict the behavior of the cryptocurrency, and the way is in fact legitimate. When a currency sees a surge for a week or goes into loss, it is highly likely that the currency will continue with the momentum and show similar behavior.
The latest example of prediction through momentum is that Bitcoin went through a continuous plunge the last week and carrying on its momentum, the currency fell further to get to the stage it is in as of today. Following this trend, the best time to buy bitcoin would be after its price has surged for a week, as the probability of a further increase would be great. According to one of the authors of the report, Aleh Tsyvinski:
Momentum is actually something simple. If things go up, they continue to go up on average, and if things go down, they continue to go down.
The report also shows evidence and proofs of how bitcoin followed its momentum trends over the years.
The second factor that can be used to monitor the moves of bitcoin is investor attention towards the digital currency. The impact of investor attention towards the digital currency can be positive or negative depending on the existing reputation of the currency.
The statistics have shown that the graphs of the google searches on bitcoin coincide with the increase in the prices of the currency.
The graphs show that the time when bitcoin was most searched on google, was also the time when the currency reached its all time high mark. This means, the more the currency is searched by people on google, the more is the probability of a price increase in the currency.
Not only do the google searches affect the prices, but Twitter also has an impact regarding this. According to the report, “a one-standard-deviation increase in the Twitter post count for the word ‘bitcoin’ yields a 2.50 percent increase in the 1-week ahead Bitcoin returns.”
Similarly, negative attention by the investors can lead to a plunge in the prices, the historical data, according to the reports, show that when the searches on the phrase “bitcoin hack” increased, a price decrease is observed.
Factor to keep in mind before making predictions
These are the tentative factors that allow an investor to predict the future behavior of a currency and cannot be termed as 100% result oriented. The data collected by the reports is purely based on historical trends and these factors just increase the probability of predictability of the prices. The other factors to take into account also include Institutional support, media attention and the ETF. As Tsyvinski told CNBC, “All things can happen, maybe the statistical patterns that we find are going to completely change. Maybe tomorrow bitcoin is going to be prohibited by regulators, maybe it’s going to be completely hacked, there are many things one would take into account.”