Bitcoin, the most popular digital currency in the world. Is it really possible to predict its price in the future?
Experts are trying to answer the question because of the price booms achieved by this currency, which speculators and investors resort to in order to reap profits, and many investment institutions resort to it as a kind of hedge.
In a report published by the French website “Cryptonaute”, writer Christophe Overy says that many investors have become interested in obtaining accurate forecasts regarding Bitcoin prices, but most of the currently available models cannot be relied upon accurately in predicting a rise or fall in prices before it occurs. It is characterized by the required accuracy, and there are several models in general that can be used as general indicators by which to determine market trends, including the following:
mining cost
The first model is the one that is based on analyzing the physical cost of mining Bitcoin. Another model, known as the “stock-and-flow” model, is the best, according to the Bank of New York Mellon report, despite its weaknesses.
This model is mainly used to determine the prices of raw materials, especially gold, which is one of the most scarce materials in the world. According to the author, it is no coincidence that Bitcoin is compared to gold, as the value of each depends on the scarcity of supply.
However, critics of this model believe that supply is not an influencing factor in determining bitcoin prices, and the same applies to gold, whose prices have fluctuated in the past, regardless of the “stock and flow” indicator.
According to the “Bank of New York Mellon” report, there are other criteria that help determine the price of gold, including the purchasing power of the US dollar and expectations regarding inflation rates and the decline in the value of the currency.
Science or art?
The second model is the “overlapping inventory and flow asset model” and is called “S2FX” for short. This model predicted that the price of a bitcoin unit, during what is known as the Bitcoin halving process, would reach $50,000 in May 2021. However, the price did not exceed $10,000 at the time.
The writer confirms that this model showed clear deficiencies in predicting bitcoin prices accurately, which indicates – according to experts – that price prediction is in fact more of an art than a science based on accurate mathematical models.
The report concludes that the Bitcoin price valuation is likely to be a combination of several models that are constantly evolving to eventually gain the confidence and acceptance of Bitcoin investors.
-In another report published by the American investopedia website, writer Andrew Blumenthal said that there are a number of elements that may help determine the price of bitcoin, the most important of which are:
-Supply, demand and scarcity
The Bitcoin currency is affected, like other currencies as a whole, by the process of supply and demand, which is a major economic principle, so if the demand for Bitcoin decreases, its price decreases, and vice versa, if the demand is high, the value of Bitcoin will increase.
The price of bitcoin is also linked to the element of scarcity that raises prices and represents one of the factors that led to the rise in the price of bitcoin to its highest levels, as bitcoin production stops at 21 million bitcoins, which is relatively low compared to other digital currencies, while demand has increased in recent years.
speculation
Speculation is one of the factors that greatly affect the price of Bitcoin and lead to its sharp rise or fall.
Speculators aspire to make quick profits with bitcoins, so they buy and sell them very quickly and frequently, which leads to short-term fluctuations in the price.
In general, fast and strong fluctuations are among the things that characterize digital currencies and open up the appetite of traders, because they create opportunities to earn money through short-term buying and selling, but they naturally come with higher risks.
organizational developments
Some countries still do not recognize bitcoin, there are some countries that ban it and ban its use. Digital currency prices tend to respond quickly to any decisions regarding legalization or prohibition.
Political events
Political events in the world that seem unrelated to cryptocurrencies can affect prices significantly.
Digital currencies benefit from the shaking of confidence in official currencies. For example, the occurrence of unrest or wars in some countries made people use digital currencies as a substitute for the traditional currency that governments deal with.
These cryptocurrencies are usually seen as assets as an alternative to traditional currencies backed by governments, so when investors lose confidence in their fiat money due to economic or political developments, they can turn to bitcoin, which drives up prices.
