Bitcoin, the most famous cryptocurrency in the world, differs significantly from dollars or any other traditional currency. It has different factors impacting its value, which is graphically represented in form of charts. How to read them? What is the meaning of their individual elements? What is worth knowing about the Bitcoin’s past in order to be able to make the right investment decisions? We will try to answer all these questions below.
Bitcoin – the leader on the digital currency market
In order to make any transaction, it is necessary to be in possession of means of payment recognized on the territory of a particular country. Back in the day, the only available option was money in its traditional meaning. Then later payment cards came into use, the era of online banking arrived, the direct extension of which were mobile banking apps. In the first decade of the 21st century, the first attempts were made to create cryptocurrencies, which means 100% virtual money. These attempts proved unsuccessful. In 2009, Satoshi Nakamoto introduced the Bitcoin on the financial market – a cryptocurrency system based on the blockchain technology (which is a chain of blocks). At first Bitcoin didn’t enjoy much interest, but Over time it started growing in popularity, until finally becoming the most famous cryptocurrency in the world. It is thanks to the Bitcoin that the blockchain technology, which we have already described in our previous articles, has spread on a wide scale.
Currently Bitcoin is among the unquestionable leaders on the market. No other digital currency has reached this kind of turnover. The media mentions the topic of digital currencies more and more often, possibly as a response to the ever-nearing prospect of full digitization of money. The Coronavirus pandemic to a large degree has contributed to renewed public debate on the future of the financial market. Because a growing number of people is getting interested in Bitcoin and in cryptocurrencies in general, we’ve decided to look into different issues related to them in this article, with an emphasis on reading Bitcoin chart, the history of this cryptocurrency and the factors impacting its price.
Bitcoin: linear charts
Cryptocurrency exchanges employ Two types of charts: linear and candlestick. Beginning investors usually have no idea what those charts mean. It is hard to figure out from the lines alone what they’re supposed to indicate. Because candlestick charts are more complicated, a large part of Internet users switches them to linear ones, which isn’t really recommended. Why? A candlestick chart shows larger amounts of crucial information. It is the default option on exchanges, it is only upon the user’s request when it switches to its simpler, linear form.
A linear chart is easier to read, but it doesn’t take a lot of important data into account. A line going through the empty space is formed by points that indicate the Bitcoin price at the end of a particular time period (it might be a daily, weekly or monthly period). By using a dropdown menu you can choose between the available periods. So depending on the time frame you’re interested in, you can check the Bitcoin price within 1 minute, 5 minutes, 1 hour, 2 hours, 1 day etc. One level down, below the line, there are colored bars, although they don’t provide any new information, they only make the chart easier to read.
Bitcoin: candlestick charts
A candlestick chart is slightly harder to read, but not to the point where it has to be replaced with a simpler version. The colored bars you have already seen on a linear charts are here as well, except that one level higher, instead of lines, there are rectangles of different sizes (they look a little like candles). What do they mean?
We’re still dealing here with a time period axis that can be adjusted as you please using a dropdown menu (daily, weekly, monthly range). The colored bars, however, contain More information than on a linear chart. They are reminiscent of candles in their shape: there are vertical lines coming out of the upper and lower edges of the rectangles. The upper line indicates the highest price of the offer available in a particular period. The lower line, on the other hand, indicates the lowest price of the same offer. The rectangle contains information on the price’s value at the moments of both the opening and closing of a particular time period. A red candle usually has its opening on the top, whereas a green one – on the bottom.
So as you can see, a candlestick chart contains more data that may prove important when planning future investments. That’s exactly why it is the best to follow Bitcoin quotes on a candlestick chart. A price trend will go up or down depending on the time period selected by the user. A sudden growth might turn out to be temporary. That’s why, when Planning an investment, it is better to take into account different time periods.
On traditional currency exchanges, the rectangle lines for closing the previous time period and opening the new one overlap. On cryptocurrency exchanges that’s not always the case. Why? The reason is actually simple: cryptocurrency exchanges operate 24/7 – there are no actual opening or closing hours here. The differences in the levels of the lines are caused by the so-called Ticks – by the time the next bar gets rendered, the price has already changed. Said differences shouldn’t be significant, though.
A candlestick chart may contain empty or filled rectangles, which has no impact on its informational value. It is only there to make it easier to read.
Yet another type of chart is Heiken Ashi. It looks a little like a candlestick chart, but upon closer inspection it is easy to notice major differences. The shared elements are bars (rectangles) and the vertical lines connected to them. They contain different types of information from candlestick charts, though. Listed below are all the possible combinations:
HA Maximum: MAX (Maximum price, HA Opening, HA Closing) – the highest value of the three listed;
HA Opening: [HA Opening (previous period) + HA Closing (previous period)] – the middle of the previous rectangle;
HA Closing: (Opening+Maximum+Lowest+Closing)/ – the average price for a particular time period;
HA Minimum: MIN (Min. price, HA Opening, HA Closing), which is the min. price out of the three listed.
The HA letters stand for Heiken Ashi. The values that have HA in their name differ from ones without those letters. Which means that an HA Opening for example isn’t the same as a regular Opening.
Heiken Ashi is a more advanced type of chart, it contains Detailed data that can’t be found on linear and candlestick charts (it’s in a way the next level). Experienced investors actually follow the ups and downs of exchange rates while using Heiken Ashi charts. These are especially worth using in case of any doubts related to the investments planned.
You know already how to read linear, candlestick and Heiken Ashi charts on cryptocurrency exchanges. Which means that you won’t have any problems understanding bar charts. In this case, the horizontal lines indicate the maximum and minimum price, whereas the vertical ones – the opening and closing for a particular time period. The color indicates an increase or decrease. It’s that simple.
It is worth noting here that there’s a room under every chart for additional bars that also indicate important data. They point to the amount of currency exchanged within a particular time period.
History of Bitcoin (BTC)
Bitcoin is the first cryptocurrency that managed to gain popularity and remain in circulation. It was created more than 10 years ago. Although there had been attempts before that to introduce virtual money on the market, they amounted to nothing. It was only the system created by a group of enthusiasts operating under a pseudonym of Satoshi Nakamoto that gained wider approval and was able to grow thanks to the constantly increasing number of users. It is based on the blockchain technology that we have described in detail in other articles on our website.
The Bitcoin network was made available to a wider group of users in 2009. The first publication explaining how it works, however, had appeared in the media as early as 2008. An article titled ”Bitcoin: A Peer-to-Peer Electronic Cash System” captured huge interest and encouraged plenty of people to use the digital currency. A week after the article’s publication, the creator of the system executed the first few transactions using Bitcoin. In February 2010 the first cryptocurrency exchange was founded: Bitcoin Market.
As the years went by, Bitcoin reinforced its position and found its competition in form of many other cryptocurrencies, such as Ethereum or Bitcoin Cash. There is no doubt, however, that it takes the first place on the podium, as evidenced by Hard statistical data: the shares of the Bitcoin network currently exceed, as of the end of November, 30% of the entire cryptocurrency market.
An interesting aspect of the history of Bitcoin is without a doubt the gradual increase of its price. At the early stage of its development, on 5/10/2009, it was noted that one dollar was equal to 0.1309 BTC. As early as February of the following year, dollar was worth 1 BTC. 1,000 USD (in words: one thousand dollars) is currently (as of 23rd November 2020) 0.54 BTC. The potential of the new cryptocurrency got noticed by specialists, the network started to grow, selected points of sale and service started accepting payments in BTC. There is no doubt that the expansion of Bitcoin owes a lot to wide-ranging promotional activities. Right from the start, the creators did their best to make sure that Bitcoin is talked about in the media and that exchanges are created where users can buy and sell bitcoins.
The year of 2010 brought another novelty: the MT. Gox exchange was created. The famous Slush’s Pool mine was founded. All of these activities lead to the spread of Bitcoin in many countries. Bitcoin has Taken over the financial market to the point where back in 2013 (seven years ago) it surpassed Western Union, and in Germany it was recognized as a legitimate payment method, not different in any way from euro or dollar. Around the same time the government of Denmark introduced regulations that exempted its citizens from taxes on trading BTC. Currently Bitcoin is the fastest growing cryptocurrency system in the world, making it possible to make transactions in many online and brick&mortar stores.
Bitcoin price – what does influence it?
Cryptocurrencies are prone to bigger price fluctuations than traditional money. It is because their values are not determined directly by macroeconomic factors: it’s neither the political situation nor the financial market regulations nor the activity of any government institutions that determine the prices of Bitcoin or any other cryptocurrencies. The Bitcoin exchange rate is therefore less stable than that of the dollar or euro, for example. It’s Hard to predict what the chart will show the next day. The price might change within an hour. On one hand, it allows for sudden, unexpected profits, on the other it might lead to bankruptcy if someone has invested a large amount in buying bitcoins. In this section we will explain what the Bitcoin price depends on and what mistakes investors should avoid.
The first factor influencing the BTC exchange rate is the law of supply and demand. Unlike such currencies as euro or USD, Bitcoin remains entirely outside the influence of government institutions. Its prices change depending on the number of transactions made using crypto. The bigger the demand while the supply is lower, the higher the price of Bitcoin. The higher the supply while the demand remains unchanged, the lower the price. It is worth noting, though, that the law of supply and demand works a little differently on the traditional financial market. The supply of cryptocurrencies is much more limited, which leads to the prediction that one day the demand for bitcoins (or other digital currencies) will exceed their amount available on the market. Therefore, all kinds of wide-ranging investments require a professional strategy that will protect the investor in case of unexpected difficulties.
Another factor that impacts the BTC exchange rates is the cost of mining. As we have already explained in other articles, a digital currency is not issued by a central bank or by any other institution. It is mined from the system’s resources. It’s a fairly complicated process that requires using technologically advanced computers. It’s getting more and more difficult to “mine” bitcoins every year. On top of that, their maximum amount is strictly defined. On one hand, it protects from inflation, on the other – it causes mining to get more and more expensive (just a few years ago the costs of mining were much lower). Currently, as of 23rd November 2020, the amount of bitcoins in circulation is 18 million. Which means it’s not far from reaching the upper limit. The costs of mining keep growing, which obviously influences the price. Another hindrance is halving – a preplanned process of reducing the amount of “coins” generated by the network by a half. Which means that miners get half as many BTC out of blocks as they did before. There is no way for this not to impact the quotes and positions in the ranking.
An important role in changes to the price is played by speculations. The cryptocurrency market is very volatile because it is actually common among investors to Lack any skepticism towards media. All it takes is for a rumor to be spread online about an upcoming recession and the situation on the market changes drastically. The BTC exchange rate is prone to such significant fluctuations that if someone wanted to look it up once a week for example, they would be out of the game very soon. The time required to make a decision is limited here to a few hours, or sometimes even minutes. Drastic drops can take place as quickly and suddenly as spectacular growths, and a daily chart might look like a winding sine wave. Experienced investors are capable of having their emotions under control and not just following predictions by journalists.
The last factor that is worth noting are all kinds of global crises. The year 2020 has shown that Bitcoin isn’t actually that much more resistant to them than traditional currencies, such as USD or euro. Right after the Coronavirus pandemic started, the BTC exchange rate dropped drastically. It was a very unfavorable time for exchanges and portfolios of businesspeople. Although the situation got much better around June and July, plenty of investors suffered severe financial losses. Which shows that cryptocurrencies aren’t entirely independent from all of the things that impact the functioning of the traditional financial system.
Everyone these days has access to Bitcoin and can make transactions with it on the Internet. It is not difficult in the slightest to set up a wallet. It can be done on an exchange’s website or using other methods: mobile apps or dedicated hardware. We have already written multiple times about setting up bitcoin wallets. Their hardware versions guarantee top level security. Thanks to us, you know now how to read charts, what is capitalization and what impacts the BTC exchange rate. By reading other articles on our website, you can learn the mechanisms governing the Bitcoin network in less than a week. As for using Bitcoin, though, you can start right now – it’s no rocket science.
Transactions executed with bitcoins are just as secure as the ones you make using online banking. Each of them is recorded in a public ledger (blockchain), and the execution time for a transfer is very short. If you want to look up the value of 1,000 USD for example, use a cryptocurrency calculator. Having your own cryptocurrency wallet is a huge convenience that is definitely worth using. In case of any doubts related to cryptocurrencies, you can always consult other articles on our website.