This week, the price of Bitcoin fell to a new low, meaning it is now possible to buy a billionth of a Bitcoin for just over $150. This makes it the cheapest it has ever been, which is great for speculators, but what does this actually mean in betting?
The cost of a Bitcoin is based on a complex formula involving several different variables, so it is difficult to say with certainty what exactly drives the price of BTC down. However, there are a few metrics that are useful to monitor when investigating the trend of the Bitcoin markets.
The first and most obvious indicator is the amount of trading that takes place in the BTC markets on a daily basis. The cheaper the price, the more there is to trade, so if the Bitcoin markets have been relatively stable in recent months, with little or no volatility, this probably indicates a good buying opportunity.
The opposite is true if the markets are extremely shallow with minimal prices fluctuation, which usually happens when there is no demand for the coins or the industry as a whole is in decline. When there is a large amount of buying and selling in Bitcoin markets, there must also be a large amount of moneyed individuals participating in the trade, which makes the market highly liquid. Market depth can be measured by looking at the number of individual Bitcoin trades that occur in a day (known as the Volatility), the price range (known as the Range), and the average number of Bitcoin units purchased or sold in each transaction (known as the Volume).
Another useful trend indicator that can help to determine the current trend of the Bitcoin markets is the 200-day Moving Average (200DMA). This is a commonly used measure in technical analysis that determines the average value of a stock over the last 200 days, so it effectively captures the trends of the market over the past two and a half years. When the 200DMA is crossed above or below by some amount, this usually indicates an important turning point in the current trend and the likelihood of future price fluctuation.
If the average value of Bitcoin over the last 200 days is above $150, this usually indicates a strong buying opportunity, as the general public has not fully adopted Bitcoin as a currency just yet. If the average value of Bitcoin is currently below $150, this usually indicates a poor buying opportunity, as there is already significant demand and the supply is gradually shrinking, which could lead to a dramatic drop in the value of Bitcoin in the near future.
Relative Strength Index
A good technical analysis indicator that can help to determine the current trend of the Bitcoin markets is the Relative Strength Index (RSI). The RSI measures the sentiment of the market by looking at the buying and selling pressure and compares it to the historical average. When the RSI is at its extreme values, this usually indicates a very powerful trend that can only be followed with high risk tolerance and large amounts of investment capital. When at reasonable values, this usually indicates a healthier market, with less dominant positioning than usual and the ability to potentially rise or fall in value as the situation demands.
The RSI can be useful in combination with other indicators. If the market is highly weighted in favor of the buyers (as indicated by a high RSI value), this usually indicates a very positive outlook for the short term, as there is still significant buying power present in the market. If the market is highly weighted in favor of the sellers (as indicated by a low RSI value), this usually indicates a negative outlook for the short term, as the demand for Bitcoin has reached a point where there is now significant resistance stopping it from rising even further in value. Therefore, it is essential to always monitor the RSI in conjunction with other indicators, as a low RSI value does not always indicate a poor short term buying opportunity and vice versa.
One of the most useful tools that can be accessed from NinjaTrader is the ‘Watch List’ feature. This allows the user to track several symbols at once and monitor the performance of each one. It is also possible to set up alerts and notifications so that important news and fundamental data can be monitored in real time.
If the user clicks on the plus sign next to the currency they want to monitor in the ‘Watch List’ window, a drop-down menu will appear, offering several different metrics associated with that currency. From a general perspective, it is always useful to track the performance of each major currency pair, or the dollar’s performance against a basket of other currencies, so important data can be monitored in real time. This is possible because all of the relevant information is available in the MetaTrader 4 platform, which provides 24/7 availability and is widely used by institutional and individual speculators around the world.
One of the major benefits of using technical analysis indicators is the ability to analyze the current situation in a much clearer way by referencing key historic metrics and drawing appropriate inferences from them. This is possible thanks to the extensive datasets that are available in the form of market charts, which help to display the current and historic performance of an investment over time. Market charts are extremely useful in combination with other indicators, as they provide an additional source of visual information that can be accessed quickly and easily.
Finally, let’s not forget about the ability to trade futures and spread bets. Bitcoin and other cryptocurrencies have become so popular that many speculative money managers and hedge funds have chosen to enter the market, creating a whole new generation of crypto-based investment vehicles. Futures, or contracts for the future, are usually the simplest and most basic financial instrument to understand and the most suitable for newcomers to the market. A futures contract is an agreement to buy or sell an underlying asset, such as a commodity, for a specified price on a certain date in the future. Therefore, they are usually the simplest and most reliable way to gain exposure to the underlying market without actually needing to buy or sell the cryptocurrency directly.
A spread bet is similar to a futures contract in that it is an agreement to buy or sell an underlying asset on a specified date in the future. However, a spread bet differs in that you have the option to choose the currency in which you want to place your bet. Therefore, you can decide to place your bet on the pound to increase or decrease the value of Bitcoin, or you can choose to bet on the movement of the value of Bitcoin (short currencies vs. long currencies). This is usually done by opening an account with a traditional broker and then buying one or more spread bets using one of the numerous crypto-to-fiat exchanges that have now sprung up around the world. Spread bets are suitable for individuals or for money managers that want to gamble on the fortunes of others.
In short, there are several different metrics that can easily be tracked and monitored from NinjaTrader to determine the current trend of the Bitcoin markets. By closely following these metrics, it is usually possible to determine whether a good buying or selling opportunity exists at this moment in time.