Green Zone Fortunes co-editor Charles Sizemore and I had a robust conversation about El Salvador bringing bitcoin in as a legal tender this week.
The Central American nation became the first country to adopt the cryptocurrency as an accepted form of payment for goods and services.
I asked Charles what he thought this would do to the price of bitcoin. (It was around $53,000 the day before El Salvador made bitcoin legal tender.)
Neither of us expected a 17% sell-off.
Smart investors are always trying to figure out the future price movement of their investments.
For stocks, there are many technical indicators that can give you a glimpse, but nothing is ever certain. In the world of cryptocurrency, it’s an even bigger animal because crypto is decentralized, and its price is based on supply and demand and the cost to mine. Plus, it’s very volatile. (I’ll get to that in a minute).
But one technical indicator has shown some accuracy in predicting the future price movement of bitcoin.
In this episode of The Bull & The Bear, I’ll tell you about this cryptocurrency price model, how it works, and what it tells me about the future price of the world’s most popular digital currency.
Bitcoin Volatility Tells a Story
Cryptocurrencies remain attractive to investors as hedges against inflation or stock price pullbacks.
But they are some of the most volatile investments on the market.
Volatility is measured by standard deviation. It’s one of the most common measures of risks in assets.
Standard deviation measures how prices are dispersed from the average price. If the price of a stock swings up or down, the standard deviation is likely high, thus indicating high volatility.
Volatility is high when it is 100% or above (represented by 1 in the chart above). Low volatility is below 50% (or 0.5 in the chart).
Bitcoin’s volatility has moved all over the place in the last 12 months — from a low of 0.33 (33%) in October 2020 to 1.17 (117%) in June.
These volatility swings directly correlate to the price of bitcoin, making it very hard to plot the future direction.
But I’ll show you a little-known indicator that has shown some accuracy in predicting long-term price movements in bitcoin.
P.S. Live on September 23, Adam O’Dell will reveal the details of a simple two-day trade we believe is the fastest way to grow money ever devised. It’s a big claim. Can we prove it? Find out on September 23 by signing up for the event here.
The Bull & The Bear
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Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He is a certified Capital Markets & Securities Analyst with the Corporate Finance Institute and a contributor to Seeking Alpha. Prior to joining Money & Markets, he was a journalist and editor for 25 years, covering college sports, business and politics.