Investors always look for indicators to understand or explain an asset's price movement. While it's easy to connect a regulatory statement or pending legislation to the price movement, it usually does not give a complete picture. Some price actions happen due to coincidence or pure unrelated luck. Bitcoin has shown a wild movement this year, rising from $20,000 (roughly Rs. 15 lakhs) to $65,000 (roughly Rs. 48.5 lakhs) and then again crashing to under $30,000 (roughly Rs. 22.4 lakhs). The world's largest cryptocurrency has now again risen above $60,000 roughly Rs. 44.8 lakhs).
In the cryptocurrency industry, it's very difficult to time or guess the price of, say, a Bitcoin. However, there are some key indicators that all Bitcoin investors should pay attention to. What are these indicators?
1. Exchange Balance
Most of the trading activity occurs on centralised exchanges. Most traders and all speculators keep their coins on exchanges to take advantage of sudden price swings. The amount of Bitcoin on exchanges gives an indication of what the big investors are thinking. For instance, Bitcoin flooded off exchanges at the fastest rate in its history over the past few months. This exodus of coins indicates that Bitcoin has been transferred from short-term speculators to longer-term holders who are taking the coins out of exchanges. A reversal of this trend would indicate near-term sell pressure.
2. Google Search Interest
A simple but effective way to gauge the general interest in Bitcoin. Usually, new and retail investors usually search for terms like “Bitcoin” and not the veterans. Sometimes, a muted search volume can also indicate that institutional investors could be behind a rally and the retailers could join once the price has peaked.
3. Bitcoin Treasures
Corporates investing in Bitcoin often have a long-term strategy. As more companies warm up to cryptocurrency, its usage would increase. This will create a domino effect and boost Bitcoin's value as an asset. Alternatively, if companies began to liquidate their holdings, the price is likely to crash. Most of the companies investing in cryptocurrency are public and so their actions can be easily tracked.
4. Active Supply
The active supply of a cryptocurrency is also an indicator of the “Hodler” mentality. As the active supply decreases, Bitcoin holders lean towards hoarding their coins, which further reduces the availability of the coin to be sold. Despite Bitcoin's volatility, Bitcoin holders have refused to sell, suggesting they believe its price to rise further.
5. Regulatory Actions
A crackdown on the mining of Bitcoin by China this year led to a sharp decrease in its prices. Also, when El Salvador faced hiccups in rolling out Bitcoin as a legal tender last month, its price briefly came under pressure. But it recovered soon and has continued to rise. It is prudent to pay attention to regulatory actions like these.