Let’s take last year as an example. In 2022, the value of Bitcoin plummeted by 64%, while the S&P 500 index dropped by 19%. For Bitcoin to truly be a diversification tool, these prices should move in opposite directions.
Furthermore, there is the fact that using Bitcoin as a means of payment for everyday needs is almost impossible, as stated by Eric Roberge, founder of financial planning firm “Beyond Your Hammock” based in Boston. To use it for purchases, you would have to convert it into dollars or another currency, at a time when exchange rates are highly volatile.
He added that for the argument that Bitcoin can serve as a hedge against inflation, it assumes that the cryptocurrency holds inherent value and will reliably retain that value in the face of certain risks.
“Bitcoin does not come with any guarantee that it will not lose its value in the face of inflation or any number of other market risks. It is susceptible to decline towards zero, and there is nothing truly preventing it from sliding,” Roberge continued.
However, despite that, technical analysis can provide signals and guidance on price trends, support and resistance levels, and potential entry and exit points. It is a tool that assists investors in making informed investment decisions and assessing potential risks.
Nevertheless, it is important to consider that the digital market and the Bitcoin market are subject to significant volatility and high risks. It is always advised to rely on multiple sources of information, use multiple strategies, and conduct comprehensive analysis before making any investment decisions.
Past price patterns, formations, and historical data help in predicting future market trends.
Technical Analysis of Bitcoin: A Professional Approach
Graphs are used to represent the price movement over a specified period of time. They can be used to draw support and resistance lines, identify upward and downward trends, and common Japanese candlestick patterns such as morning and evening stars, doji, and more.
Moving averages are used to smoothen price movement and determine the general market trend. They provide an indicator of the overall price direction and assist in identifying potential entry and exit points.
Standard Deviation Indicator:
Technical signals include indicators such as the Relative Strength Index (RSI). These indicators are used to identify overbought or oversold conditions in the market and forecast changes in price direction.
Support and Resistance Levels:
Support and resistance levels are areas on the chart where the price may face difficulty in rising or falling more than usual. These levels can be used to identify potential entry and exit points and determine target levels.
Technical analysis of Bitcoin can help investors understand potential price trends and make informed investment decisions. However, it is important to consider that Bitcoin is inherently volatile and influenced by various factors, and technical analysis may not be able to predict sudden changes or major events.