Bitcoin differs from standard markets in many ways. Some standard market analysis tools are inapplicable due to unique features of Bitcoin. Hence the question

What methods/tools can used to analyze and predict the Bitcoin market?

It is better if the tools have a proven trackrecord of actually working for predicting the Bitcoin market, but it is unlikely that such examples exist. Therefore, I am perfectly happy with references to the literature on econ/finance tools that should work for the bitcoin market but maybe haven't been applied yet.

Related questions

Is there a correlation between Technical Analysis predictions and actual prices?

Can bitcoin transaction data be used to study markets?

  • This smells like investing advice to me--I doubt you'll find an expert on that here. – eMansipater Sep 14 '11 at 1:48
  • @eMansipater not really financial advice (or at least that was not my intent) as more of a technical question (since my interest is mostly academic) of the sort one might ask at quant.SE. Unfortunately, I can't ask that question there, since it requires much more knowledge about bitcoin and its users than it does about quantitative finance to answer... however, if I don't receive an answer here and find a good way to rephrase the question for a more general audience, then I will cross-post to quant.SE. – Artem Kaznatcheev Sep 14 '11 at 17:19
  • @eMansipater if you have specific comments on why it sounds like investing advice, then you are welcome to edit my question or make suggestions and I will try to edit the question into better form. – Artem Kaznatcheev Sep 14 '11 at 17:20
  • I guess I'm inclined to just take "Bitcoin differs from standard markets in many ways" as an unsupported assertion, and then the ensuing "How can I predict?" sounds like any investor wanting to predict the performance of a stock/commodity/etc. It seems like being able to prove that first claim in any particular respect would itself yield your answer. – eMansipater Sep 14 '11 at 18:39
  • See my similar question on Personal Finance and Money - Stack Exchange from last June: What technical indicators might be appropriate for analyzing Bitcoin currency trading – nealmcb Nov 23 '11 at 19:07

Technical analysis is important, but right now I think that one should not rely exclusively on chart analysis and indicators to predict Bitcoin's price movement. For example, at the end of July and mid-August some indicators, such as MACD or RSI, clearly showed a trend inversion that did not happen.

One of Bitcoin's unique features is the mining system and I think that, right now, this plays an important role in price analysis. After Bitcoin hit $30 in July, many people invested in mining rigs and difficulty rose a lot. Those people are looking forward to get their investment back and, since Bitcoin is extremely infalctionary right now (50 new coins every 10 minutes), there is a big selling force at the markets.
If miners sell 30 coins out of each block, we need around 1 million dollars per month to keep the price at $5.

I also believe that the $30 spike was caused by media exposure. Such a small market can be easily manipulated by a few serious investors.

Main points:

  • Use Technical Analysis carefully.
  • Consider the number of coins per block and the money invested by miners
  • Keep an eye for important news that may attract new investors to the market

To finish, here is one stock behaviour that I could identify: the dead cat bounce.

A dead cat bounce is a trading term used to define when a stock in a severe decline has a sharp bounce off the lows.

Dead Cat Bounce


http://bitcoincharts.com/markets/ and http://bitcoinwatch.com/ are both good resources

I also heard about a SierraChart Technical Analysis tool over at campbx dot com

  • both of those links are just market data. The technical analysis tool reference you provide is specifically addressed in one of the related questions I list, and the link I give already argues for why it might not be such a good predictive tool. can you edit your answer to explain how it answers the question? – Artem Kaznatcheev Sep 9 '11 at 15:58
  • I would beg to differ that the charts on bitcoin charts are a far distance from raw data. They are quite configurable. I don't see any reference to the SierraChart tool that I mentioned in those questions. Perhaps you could include some information about it in your question. My answer refers to some tools, but I can not cvouch for their performance. If you want information about their performance then I suggest you edit the question title as such – barrymac Sep 9 '11 at 16:18

I hazard that you might be better off manipulating the market than trying to predict its direction. The BTC market is not that large, and seems to be subject to fluctuations when big "events" happen such as a hacking attempt. Perhaps hacking MtGox or defacing bitcointalk.org is a better way to manipulate the price than Bollinger bands?

  • 1
    Hacking websites is not a way to analyze the market. – nmat Sep 14 '11 at 0:49
  • 1
    I'm not advocating manipulating the market; however, the thing with technical analysis of markets is that as soon as someone finds a good strategy, others copy it and that strategy's profitability is quickly erased. If you haven't read "A Random Walk Down Wall Street," I can heartily recommend it if you are interested in an easy to read analysis of the efficient market theorem -- essentially why trying to predict the future direction of free markets is not profitable for most investors. – Ken Simpson Sep 16 '11 at 18:57

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