If you’ve tried finding a decent price prediction service at least once, you might know how tricky it is. Deep down each of us wants to find a tool that would guarantee the accuracy of forecasts – but if that tool existed, chances are its founders would have been billionaires by now.

While price prediction services can help gain insights and make informed decisions, it's essential to approach them with caution due to their inherent uncertainties and limitations. Let’s explore how such services work and how you can pick a credible one. While doing so, we will keep in mind that no platform will give you a 100% accurate forecast.

Is there any way to make a reliable crypto price prediction?

The short answer is – yes, to a certain extent.

Modern price predictions rely almost exclusively on artificial intelligence, more specifically – on machine learning models. The main feature of such models is that they can process vast amounts of data quickly and objectively, potentially uncovering patterns that may be challenging for humans to identify.

The quality of a particular AI model and the accuracy of its predictions depend on the two following parameters:

1. How much data is collected. Price prediction services gather vast amounts of historical price data, trading volumes, market sentiment, news articles, social media activity, and other relevant information. The more data is collected, the more accurate the result is.

The AI models apparently cannot gather all the information about a given coin, especially the data that isn’t public. Even more importantly, no model can predict poor decision-making, an Elon Musk tweet, or a Wall Street collapse – while these factors sometimes have a decisive effect on crypto prices. This is a key limitation for any, even the best, AI models.

2. The quality of the prediction model. After collecting data, AI models execute the so-called feature extraction: they analyse the data to identify patterns, correlations, and other factors that may influence cryptocurrency prices.

Based on the extracted features, prediction models are created. Then these models are trained using historical data, and their accuracy is evaluated by comparing their predictions to known outcomes. Once the models are trained and validated, they can generate future price predictions based on new input data.

As you know well, crypto prices are subject to rapid and substantial fluctuations. Slight changes in market dynamics, investor sentiment, regulatory announcements, or market manipulation can lead to unexpected price movements, making accurate predictions difficult.

How do I judge the quality of an AI prediction model?

The more details a price prediction service shares about how its AI model works, the more likely it is that its forecasts are at least not made up.

Meanwhile, the key feature of machine learning is that you cannot clearly identify how exactly a model extracts a given pattern. Even if you know what data it collects and analyses, the only way to judge a prediction model is by evaluating its performance.

The art of flexible confidence

You must have seen the services that give predictions without specifying how confident their model was about these predictions. Some platforms even demonstrate hilarious overconfidence by offering forecasts like “Bitcoin will cost $89,756.45 in 5 years and 3 days.”

It’s good when a service offers a probabilistic prediction, allowing us to measure the potential accuracy of the price forecast. For example, when the platform says things like “our model is 76% sure that Bitcoin will cost more than $32,000 by September 1, 2023.”

Revealing past results

A trustworthy price prediction service discloses the forecast history and is open about its model’s performance in the past. Most platforms don’t share information about whether you’d make a profit or a loss if you had used it to make a decision. It is also common that services significantly change their predictions on a daily basis based on the current market situation.

Nevertheless, some services are not afraid of sharing the ultimate accuracy of their predictions from the past. Give preference to price prediction tools that tell how much you’d have earned (or lost) if you’d used their prediction in a given month.

Key takeaway

Treat price forecasts as rough estimations. Use the services that openly share the details of how their AI models work, disclose the prediction accuracy history, and give probabilistic forecasts.

As cryptocurrency markets are highly volatile and influenced by numerous unpredictable factors, making accurate predictions is challenging. While not infallible, cryptocurrency price forecasts can serve as a tool to support decision-making processes, aiding in risk assessment and strategy development.

Price prediction services are not the right solution if you manage large funds. For family offices and HNW investors it is preferable to trust professionals and get a custom plan, for example, to entrust money to personal account management.