How will the various indicators of BTC perform in 2021?

Original title: "Hot Spots 丨 How will BTC's various indicators perform in 2021?" "

Original source: Encryption Valley Live

In the past few months Bitcoin has received a lot of attention here. It hit an all-time high of $41,940 in early January and has more than doubled in value in just over a month. Large financial institutions like Paypal, MicroStrategy, and Grayscale are finally adopting Bitcoin.

However, Bitcoin is a very volatile asset, and a price fluctuation of more than 20% in a few hours is not Not uncommon. All of this demand has led to a gradual increase in retail interest in Bitcoin and a fair amount of speculation about its future price.

There are many technical indicators, and market trends that can be analyzed in an attempt to predict the price of Bitcoin. I'm not going to throw out any price predictions, I'm neither qualified nor knowledgeable about it to try to do so. But I have been paying attention to Bitcoin for several years, and I also hold a small amount of Bitcoin. So I thought I could share with you 5 indicators that I think are relatively easy to understand and have a quantitative impact on the price of Bitcoin.

Stock-To-Flow model

Stock-To-Flow (stock-to-flow) ratio is another common indicator used to estimate the price of Bitcoin. Simply put, the stock-to-flow ratio is a way of measuring how much the quantity of something has increased over time, compared to the quantity currently in existence.

Stock To Flow Ratio calculation formula

Bitcoin has a fixed supply rate that is halved every 4 years. Currently, miners are rewarded with 6.25 bitcoins if they are the first to solve complex Hash puzzles. This reward is halved every 4 years until around 2140, at which point no new bitcoins will be generated.

This is why Bitcoin is so scarce, so stock and flow models try to predict the price of Bitcoin based on this fact. The chart below shows the change in Bitcoin price over time, the formula uses a 365-day moving average to smooth changes due to the halving event.

Bitcoin Stock To Flow Model— LookIntoBitcoin

Google Trend

Bitcoin relative search interest over time (global) -- from Google Trends

The graph above shows Google's Search interest, relative to the highest point on the graph over the past 5 years. We can see that the current interest level is about 75% of the peak interest level in late 2017.

You can’t tell much about bitcoin price from this graph alone, but it’s interesting to compare the two of. I extracted the above trend and appropriately zoomed in on the price of Bitcoin over the past 5 years on the chart you see below. The price of Bitcoin is plotted in blue and Google Trends in orange.

Bitcoin price juxtaposed with Google Trends - Observing Bitcoin price from TradingView

relative strength Index (RSI)

RSI is a momentum-based indicator designed to measure the magnitude of recent price changes to determine the Whether the asset is overbought or oversold.

Typical values range from 30 to 70. Below 30 indicates that the asset is oversold or undervalued, and above 70 indicates overbought or overvalued.

Below you can see a graph of Bitcoin’s price compared to its RSI indicator. Note that Bitcoin's graph is on a logarithmic scale to better account for price differences.

Historically, whenever Bitcoin’s RSI peaks above 70, it doesn’t last long and would lead to a sharp drop in prices. Currently, Bitcoin is doing its best to break the trend, will we see a sharp correction anytime soon? Nobody knows, but it's another important metric any investor should pay attention to.

Comparison chart of bitcoin price and RSI indicator - from TradingView

DXY index

The U.S. dollar index (DXY) represents the relative strength of the U.S. dollar on a global scale. DXY compares the value of the U.S. dollar against six foreign currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

Bitcoin, by its very nature, is a deflationary asset. There is a fixed supply of 21 million coins. This relative scarcity means its value is likely to increase over time.

Since September 2019, the Federal Reserve has printed approximately $9 trillion in U.S. dollars. Roughly 20% of the dollars currently in circulation were printed in 2020!

M2 Stock of Money: Number of U.S. Dollars in Circulation -- via Stlouisfed

Bitcoin is in the midst of a strong bull market An increasingly popular inflation hedge. The coronavirus has led to a frenzy of water releases across the globe. While this drove down the value of domestic currencies in many countries, it had a positive impact on the price of Bitcoin.

In the picture below, you can see the blue BTC price chart, orange DXY value relative change chart. At the two all-time highs in late 2017 and early 2021, you can see that the price of BTC will rise as the value of DXY falls. Of course, there are many other factors at play here, but this is an interesting one.

Bitcoin price juxtaposed with DXY relative change - news from TradingView

Number of Tweets

Twitter has about 330 million users and about 500 million tweets are sent every day. Similar to Google Trends, we cannot get much price information directly from this indicator. However, this is another interesting comparison to gauge interest levels. How much this affects price depends on many other factors.

The graph below shows the number of daily tweets (orange) versus Bitcoin price (blue) over the last 5 years picture. We can see a similar trend developing here, with Twitter activity surging in response to large price swings in Bitcoin.

Number of daily tweets compared to Bitcoin price - Bitcoin price from TradingView, Twitter metrics from BitInfoCharts

About investing in Bitcoin

It's just out there with many interesting indicators And a small subset of the statistics that have some correlation to the price of Bitcoin. If you want to invest, you should be very aware of the risks involved.

Bitcoin is a very volatile asset.

In my opinion, it is still possible to make decent profits investing in Bitcoin and other cryptocurrencies. As with any investment though, the key is to do your own research beforehand!

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