Crypto Charts (and Why You Shouldn’t Put All Your Trust in Them)

We’ve all seen them.  Crypto charts that look just like stock charts.  If you’ve been on Twitter, Youtube, Reddit or countless trading platforms, you may have come across some ‘expert analysis’ on the next anticipated movement in a cryptocurrency that ultimately never comes to fruition.  Or if it does, it happens outside of the actual analysis and the narrative is retrofitted to reflect the action.  If you’re new to crypto, or an expert in the area and want to know why WE don’t trust the majority of crypto charts out there, then this read is for you.

First, a quick disclaimer.  At Understandingcrypto.info, we offer a field of resources.  Resources we ourselves use.  In fact, that is why we created the site in the first place.  To have all our due diligence resources in one place.  However, we also thought there may be a value to the crypto community in sharing our journey… a journey that has seen losses, gains, and everything we’ve learned along the way.  We are not financial advisors, and this is not financial advice.  This is simply for entertainment purposes.  This article doubles down on that.  Consider this an ‘Opinion’ piece.  This article is our opinion on why we don’t put much ‘stock’ in crypto charts and is the same message we share whenever anyone asks us.

What are Crypto Charts?

Do a quick google search or use your favorite trading platform, and you will see analysis of cryptocurrency price action as represented by charts.  These charts are usually captioned with a quick explanation on why the price of a cryptocurrency will move up or down in the near future based on financial indicators or fundamentals.  These indicators are divined by an ‘expert’, and the rhetoric is plastered everywhere.

In the world of stocks, where historical data is much longer (stocks have been around longer than crypto), raw data is multiplied by quantity (more stocks than crypto), and volatility is more manageable (as a whole, the stock market is less volatile than the crypto market), stock charts have some value.  But even in the stock market a disclaimer is given and is one that you’ve likely heard, Past performance does not predict future outcome.  Just because a stock has moved in a pattern during past events does not mean it will continue to do so.  Anything can happen.  In the world of cryptocurrencies, this is especially true.

Why We Don’t (mostly) Believe in Crypto Charts

Let’s get right to it.  The issue with crypto charts lies in volatility.

The issue with crypto charts lies in volatility.

As defined on Investopedia, financial volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security.  For example, when the stock market rises and falls more than one percent over a sustained period, it is called a “volatile” market.

In the sector of cryptocurrencies, volatility is a boon and a curse.  It is what paves the way for moon shot gains and creates bag holders with plummeting losses all in a 1-day period.  It is also why many in traditional, centralized finance want to regulate the sector.  Crypto is here to stay, and many financial institutions are now getting involved.  However, it is just as important to them to protect their own portfolios as it is to protect the portfolios of the public, which is why we are in the middle of so much talk about regulation.  And that talk, incidentally, is an example of why crypto charts hold little value.

The more volatile a stock or coin is, the more it can be affected by social factors.  With the current state of social media and everyone having a voice, any influencer can impact the price of a coin.  Here are a few recent examples you might have heard of (and if you did, it’s likely because of social media rather than you being within the inner circle of the coin):

• DOGE coin’s dramatic run up on tweets by Elon Musk
• Altcoin price fluctuating based on Ethereum’s upcoming mining changes, which has been ‘coming soon’ for a year now)
• Bitcoin ETF rumors and SEC regulations affecting market prices

The list goes on and on.  And while some of that could fall under the category of ‘news’, that news is amplified and contorted 100-fold because of social media.  And likely by the time you read it, hear it or learn about it, that ‘news’ is already baked into the price.  However, the public sector takes that news and either buys or sells based on it anyways, and the price action moves even more and more… negating any actual financial indicators.

Even worse is then looking at a chart that comes out a month or year later.  The context of that price movement being socially based isn’t usually accounted for or explained in the expert analysis.  Yet the price action itself is used as part of the indicator analysis.

The context of that price movement being socially based isn’t usually accounted for or explained in the expert analysis.  Yet the price action itself is used as part of the indicator analysis.

Want proof?  Google ‘dogecoin price chart analysis’, ‘dogecoin price prediction’ or anything of the like.  Find any article on those front pages.  How many talk about an Elon Musk pump when using a chart to predict future pricing?  It doesn’t matter when you read this article or how the Google rankings change between this time of writing and your time of reading…. you likely wont find many, if any, at all.

Why We (sometimes do) Believe in Crypto Charts

Not all crypto charts come from a bad place.  Some are done by respected entities with a vast knowledge of financial indicators and fundamentals.  However, they are far and few between. 

Additionally, if the context of a crypto chart was created in a vacuum, meaning social impact was completely accounted for and removed as part of the analysis, that would be something we may use as part of our due diligence.  However, creating such a chart is difficult and out of the capabilities of the many of the ‘experts’ you may be following online.

Lastly, a chart that takes INTO account social variables or public sentiment is one we do hold value in.  A chart can’t predict the next time a social influencer will pump a meme coin, but it can reflect the overall sentiment of a public market and give you additional insight you wouldn’t otherwise have if you ignored all crypto charts.   There are charts like this we will cover in another article.

At its core, retail investors (nonprofessional investors who buy and sell coins through a broker/exchange), get news late and react to news late.  Even if its on Twitter, someone else already had the inside information on the news.  And if an article is written on the news, it means it has been out for even longer.  Yet many retail investors still act on that news, whether it is buying or selling.  Sometimes all that can happen in a month, sometimes in a day, sometimes in an hour.  Regardless, the impact social media has on cryptocurrencies is a leading reason why crypto charts, for the most part, cant be taken as gospel and is why you shouldn’t put all your trust in them.  And Pro Tip: If you are going to look at a crypto chart, just see if the expert analysis takes into account social factors.  If it doesn’t, you can likely ignore it.  If it does, add it to your portfolio of due diligence and hit that like button.

Pro Tip: If you are going to look at a crypto chart, just see if the expert analysis takes into account social factors.  If it doesn’t, you can likely ignore it.  If it does, add it to your portfolio of due diligence and hit that like button.