How do various BTC indicators perform in 2021?

Bitcoin has received a lot of attention over the past few months. It hit an all-time high of $41,940 in early January and more than doubled in value in a little over a month. Major financial institutions such as Paypal, MicroStrategy, and Grayscale are finally starting to adopt Bitcoin.

However, Bitcoin is a very volatile asset, and it is not uncommon for the price to fluctuate by more than 20% in a few hours. All of this demand has led to a gradual increase in retail interest in Bitcoin and considerable speculation about its future price.

There are many technical indicators and market trends that can be analyzed to try to predict the price of Bitcoin. I am not going to throw out any price predictions, I am neither qualified nor knowledgeable enough to attempt to do so. However, I have been following Bitcoin for several years and I own a small amount of Bitcoin myself. So I thought I would share with you 5 indicators that I think are relatively easy to understand and have a quantitative impact on the price of Bitcoin.

Stock-To-Flow Model

The Stock-To-Flow ratio is another common metric used to estimate the price of Bitcoin. Simply put, the Stock-To-Flow ratio is a way of measuring how much the quantity of something has increased over time, compared to the quantity that currently exists.

Stock To Flow Ratio Calculation Formula

Bitcoin has a fixed supply rate that halves every 4 years. Currently, miners are rewarded 6.25 bitcoins for being the first to solve a complex hash puzzle. This reward halves every 4 years until around 2140, when no new bitcoins will be produced.

This is why Bitcoin is so scarce, so the stock-to-flow model attempts to predict the price of Bitcoin based on this fact. The chart below shows the price of Bitcoin over time, and the formula uses a 365-day moving average to smooth out the changes caused by the halving event.

If Bitcoin continues to develop according to this forecast pattern, it is estimated that Bitcoin will reach $100,000 by mid-2021 and $1 million by 2026. Whether Bitcoin will continue to develop according to this trend, only time will tell.

Bitcoin Stock To Flow Model — LookIntoBitcoin

Google Trends

Bitcoin relative search interest over time (global) – from Google Trends

The above chart shows Google search interest relative to the highest point on the chart over the past 5 years. We can see that the current interest level is about 75% of the peak interest level at the end of 2017.

You can’t tell much about the price of Bitcoin from this graph alone, but it’s interesting to compare the two. I’ve taken the trends above and zoomed in on the last 5 years of Bitcoin’s price on the graph you see below. Bitcoin’s price is plotted in blue, and Google Trends is plotted in orange.

Bitcoin price side by side with Google Trends - Bitcoin price from TradingView

Relative Strength Index (RSI)

The RSI is a momentum-based indicator designed to measure the magnitude of recent price changes to determine whether an asset is overbought or oversold.

Typical values ​​range from 30 to 70. Below 30 means the asset is oversold or undervalued, while above 70 means it is overbought or overvalued.

Below you can see a graph of Bitcoin’s price versus its RSI indicator. Note that the graph for Bitcoin is on a logarithmic scale to better illustrate the price differences.

Historically, whenever Bitcoin’s RSI peaks above 70, it never lasts long and results in a significant price drop. Currently, Bitcoin is doing its best to break this trend, will we see a significant correction soon? No one knows, but this is another important indicator that any investor should pay attention to.

Bitcoin price vs. RSI indicator - from TradingView

DXY Index

The U.S. Dollar Index (DXY) represents the relative strength of the U.S. dollar around the world. DXY compares the value of the U.S. dollar against the following six foreign currencies : the euro, the yen, the pound, the Canadian dollar, the Swedish krona, and the Swiss franc.

Bitcoin, by its very nature, is a deflationary asset. There is a fixed supply of 21 million coins. This relative scarcity means that its value is likely to increase over time.

The Federal Reserve has printed approximately $9 trillion in U.S. dollars since September 2019. Approximately 20% of the dollars currently in circulation were printed in 2020!

M2 Money Stock: The amount of US dollars in circulation -- from Stlouisfed

Bitcoin is now in the midst of a strong bull run, and it is becoming an increasingly popular hedge against inflation. The coronavirus has led to a frenzy of money printing around the world. While this has driven down the value of domestic currencies in many countries, it has had a positive impact on the price of Bitcoin.

In the image below, you can see a graph of BTC price in blue, and a graph of the relative change in DXY value in orange. At the two all-time highs in late 2017 and early 2021, you can see that as the value of DXY decreases, the price of BTC increases. Of course, there are many other factors at play here, but this is an interesting one.

Bitcoin price and DXY relative change side by side - News from TradingView

Number of tweets

Twitter has about 330 million users and about 500 million tweets are sent every day. Similar to Google Trends, we can't get a lot of price information directly from this metric. However, it is another interesting comparison to gauge interest levels. How much this affects price depends on many other factors.

The chart below shows the number of daily tweets (orange) versus the price of Bitcoin (blue) over the past five years. We can see a similar trend forming here, with Twitter activity surging with large fluctuations in the price of Bitcoin.

Daily Tweets Count vs Bitcoin Price - Bitcoin price from TradingView, Twitter metrics from BitInfoCharts

About Bitcoin Investment

This is just a small sampling of the many interesting metrics and statistics out there that have some correlation to the price of Bitcoin. If you want to invest, you should be well aware of the risks involved.

Bitcoin is a very volatile asset.

In my opinion, it is possible to make a tidy profit investing in Bitcoin and other cryptocurrencies. Although, as with any investment, the key is to do your own research beforehand!