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Why does technical analysis not work properly in Bitcoin?

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Baris ERKAYA

Investors are generally divided into two poles when it comes to a financial instrument: technical analysts and fundamental analysts. When it comes to technical analysis, what immediately comes to mind are trend lines, formations, chaotically drawn support resistances, GANN, Fibonacci and possibly hundreds of other oscillators (i.e. swings) and cycles that an ordinary investor has never heard of. talk in his life.

In fact, the basic logic of technical analysis is clear: it shows the heartbeat of traders. Which investors bought it from where and where is the cost? What is the investor reaction, that is the heart rate, combined with the herd psychology in falling prices, gets excited when it goes where it goes, or how much gives in to the excitement? For cryptocurrencies, think of it as a 24/7 recorded ECG. It’s just a more massive type of ECG.

Are cryptocurrencies really transparent?

Of course, in an investment instrument such as a stock, price charts allow you to make healthier interpretations depending on the free float ratio of the stock, the amount of shares owned by whom, or its distribution in the swap. Because in most actions all this information is transparent. Therefore, in boards with more shareholders and a more even distribution of shares, technical analysis can sometimes work perfectly with good interpretation. However, when it comes to cryptocurrencies, the number of variables is many times greater than stocks. In fact, mathematically do we know more about BTC’s future than stocks? Yes. We know when the total supply will be complete. We can see the demand more or less from the market volumes. What is the problem in this case? So what exactly is there in Bitcoin that contradicts the technical analysis predictions of all experts without exception?

FACTS THAT CRYPTO INVESTORS HAVE LOST

  1. We only have an illusion as to who exactly holds Bitcoin. Yes, we know the distribution of those who have Bitcoin. But there is no answer to the question of who is acting with whom.
  2. In Bitcoin, which was dominated by individual investors until 2017, a phenomenon such as Grayscale emerged after this date and dragged the largest players in the world’s financial markets onto this market. The Bitcoin chart, which until 2017 amply showed the psychology of miners or individual investors, is now starting to show the heart rate of institutional investors. Many of these investors are acting together due to grayscale consolidation. This causes aggressive movements in Bitcoin. So unless you know the hidden agenda of these investors who hold the most Bitcoin wallets, predicting prices is no more reliable than reading a fortune of coffee.
  3. We can observe the movements in the wallets of the miners, but it is a mystery at what level the Bitcoins transferred from a miner’s wallet to the hot one are sold and at what risk.
  4. Among investors holding Bitcoin, the type of investor who can sell when they see high profits in the short term or run away when they fall a little hard has joined more than those who are hodlers (i.e. they will hold Bitcoin in the long run). This made price predictions much more difficult.
  5. Examples such as UST and Luna changed the investor’s perception of risk for the entire market. If we take the example of BIST, if a company that seems very solid fails, this situation may not change the confidence in the shares of Ereğli Demir Çelik. Indeed, the investor could even react by running away from such securities. However, in cases like UST, which it has no control over, living with the bitter experience the whole future is staring at in its mouth can lead Bitcoin and even all cryptocurrency investments to safe alternatives like gold.
  6. A very serious part of investors in the cryptocurrency market are emotional even when doing technical analysis. Sentimentality in the market is deadly. Dozens more could be added to these items. As a last word: this and other similar reasons cause technical analysis predictions to almost completely fail, even in flagship cryptocurrencies like Bitcoin and Ethereum. These articles and the last sentence were created with the advice of experts who have been operating on the financial markets for years.

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