Why Are Predicting Crypto Currency Prices So Difficult?

Many may argue the title of this article and say that predicting crypto prices is pretty easy, they just go up and they are going to keep going up. This has been the mantra for anyone drinking the crypto Kool-Aid but isn’t quite what we’ve been witnessing as of lately. We’ve been seeing violent swings in price and massive losses without much explanation. Let me try and put things into perspective here.

There are a lot of factors that make price discovery with cryptos a mystery. One of the biggest factor is what can a crypt hold on to when it starts loosing value to prop itself back up? I’m sure you’ve all heard the price predictions for bitcoin in the news, some say it will break $100,000 USD, I think that the tech Legend John MacAfee said it would go to over $1,000,000. My question is what is the value provided to justify this?

If there were a crisis of fiat currencies around the world would people run to crypto currencies? If so why would they do something like that? We would have a move from one faith based system to another. One is backed by a government and the other is backed by the holders of the currency. The question again is how do we establish a value of what a crypto is worth.

The US dollar use to be backed by the countries gold reserve for a time. Because of this the US dollar could never lose its total value. There was something behind it. If there were a crisis the currency was convertible into the asset behind it. This is obviously no longer the case but when we look at the potential for replacement of cash or fiat with cryptos we have to ask ourselves the same line of questioning. What is the value of the crypto anchored to?

I believe that the answer to the question as to the value of crypto currency is simply what the speculative community gives it. This brings up a problem of a lack of utility associated with value and thus a greater potential for what we are now seeing with price volatility. The price action has nothing to hold on to. During last week’s trading sessions we saw the equities markets sell off and start to move out of risk but then later moved back into risk but the crypto market didn’t react the same as the overall market in recovering. For the above reasons I believe this is why, what do they have to hold on to?

When investing in any asset make sure that you always do your research on your investment and consult your paid financial advisor before making the trade. The markets are becoming increasingly difficult to predict so do NOT invest money that you cannot afford to lose.

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