The investor has no choice but to become a futurologist. That is, to invest, you have to forecast. Why? Well, because this game is about buying at one price today and selling at another price tomorrow. Growth occurs over time.
However, markets are cyclical and progressive at the same time. The big challenge is to find a pattern in a constant succession of random events. What is the trend? What is the probability?
In this complex quest, our allies are the patience, rationality and probability. The enemies? The enemies are fanaticism, wishful thinking (wishful thinking) and sentimentality. Or, put another way, the future is not written. There are no certainties. Then, the skeptic is always a better investor than the person of faith.
Of course there are no certainties. But that’s not to say that all our assumptions about the future end up being false. The universe is completely chaotic. Obviously there is some determinism. In fact, there are many things that we can predict with relative accuracy. That is the importance of observation and statistics. With this knowledge, we can place bets on future events. We can say that this is probable or improbable.
Fanaticism, on the other hand, rests on an idea. What you want to build is a dream. The most important thing is the aspiration. So, reality is not something to be observed and described. Reality is something that must be modified to achieve the victory of a cause.
Let’s talk specifically about the price of Bitcoin. What is Bitcoin? Bitcoin is code on a decentralized network. Or, put another way, Bitcoin is a series of numbers and letters in a database. What happens is that that code is used as an interchange fee. What is valuable is what the code represents. The code has no intrinsic value. But It does have monetary value. Bitcoin price
Why buy a code? Different reasons. Ideology, privacy, convenience, fashion or speculation. The initiative started with the idea of a digital gold originally driven by libertarians, anarcho-capitalists, and conservatives in a very Californian ethos (libertarianism, technophilia, counterculture). Let’s say it’s about a citizen currency inspired by the gold standard narrative of gold beetles and classical liberalism in contrast to the “Keynesian progressivism” of the statist dollar.
This code (like all code) is a social agreement. The participants of that voluntary pact recognize that code as an interchange fee. Now, in practice, that code works like a collectible. A digital/speculative asset with practicality. In other words, Bitcoin is also very convenient, because it eliminates friction. For the unbanked, the gig economy, the gray economy, the parallel currency market, and remittances, Bitcoin has found many users because of the usefulness of the technology.
Of course most buy BTC for speculative reasons. The non-idiosyncratic investor invests for the financial opportunities it offers. For this group, the price of Bitcoin does matter. Why, it is in the strong price fluctuations that the profit potential lies.
Simple. The Bitcoin price is defined by supply and demand. So, when it comes to making forecasts, there is no other option than to make demand projections. If tomorrow’s demand promises to be greater than today’s demand, what we have is a buying opportunity. The idea is to buy today “cheap” to sell “high” tomorrow. But, for that other person to buy you “expensive”, that person must think that the price will continue to rise. An optimistic forecast is a buy signal. A pessimistic forecast is a sell signal. And a mixed forecast is a sign of caution.
In times of volatility and uncertainty, it is very difficult to identify a trend. On a scale of 0 to 100, 50 is the most unpredictable scenario. Why, in that 50/50 scenario, anything can happen. Therefore, it is very difficult to come close to a forecast.
Suppose we buy thinking of a 60% probability that the price will go down. Officially, we are bassists. And the positions are taken with that consideration. In other words, we assume a bearish stance based on the signals we are receiving. In fact, if someone asks us, we say that the price is going to go down. However, it goes without saying that this position is not absolute. Of course it is a probability. 60 is not 100. 60 is only 60% likely. And the probable is not certain.
In extremely exceptional times, the improbable and random is common. Because events defy statistical patterns. Models don’t work like before. And false signals are our daily bread. When chaos prevails, the price fluctuates capriciously. The bulls may dominate for a while. Then, it’s the turn of the bassists. And so. There is no consensus. So, the different narratives fight for supremacy. Any movement is a possible trap. Buyers, for example, can cause a rally. But suddenly they are not enough to sustain that price for long. Therefore, the emotion usually lasts very little.
Uncertainty creates conservatives. And a conservative generally turns to stability to escape risk. youAny expectation must look to the future and weigh the context. In other words, our expectations must be rational.
What does it mean to have rational expectations? Largely, it means not thinking that the past repeats itself in a literal way. It means not assuming on blind faith that all cycles are exactly the same. It means anticipating surprises. And it means having common sense when analyzing a historical record.
the famous model stock/flow (inventory/flow) advocated by the influencer PlanB is the perfect example to illustrate these points. This well-known forecasting model excludes the effects of demand on price and focuses only on supply. In the past, the model has worked, because the macroeconomic context has been practically the same during the period 2008-2021. However, now the context is different and the model stopped working. The inability to recognize the exceptional nature of the new situation is the source of so much confusion. Doesn’t the past repeat itself? Words for reflection.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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