Financial experts from Yale University proposed their own system for predicting price trends of major cryptocurrencies.
The new study was conducted by economist Yale Aleha Tsyvinski and Yukuna Liu. As they both think, their development is “the first comprehensive economic analysis of cryptocurrency and Blockchain technology”.
History a life teacher?
In the article, the authors deal with major cryptocurrencies, such as bitcoin (BTC), ethereum (ETH) and ripple (XRP). They examine historical data that can estimate future movements of digital currencies.
Experts analyzed the behavior of bitcoin in 2011-2018. In terms of ripple and ethereum, periods from 2012 and 2015 have been checked to now.
In their study, Tsyvinski and Liu discovered that cryptocurrencies do not have such links to the main markets of shares, paper currencies or precious metals as well as macroeconomic factors, as we might think. Instead, researchers say that cryptocurrency movements can be predicted by factors specific to cryptocurrency markets.
Among these factors is “a strong momentum effect in the time series”. Tsyvinski and Liu argue that if the price of Bitcoin increases during the week, it will probably increase in the next week. Researchers note that the sharp rise in the price of the main cryptocurrency stimulates higher demand in the market, which leads to larger investments on it. They think that the “momentum effect was stronger” for bitcoin, but “still statistically significant” for ethereum and ripple.
In addition to the effect of momentum, researchers from Yale mention the factor of investor interest, which is a correlation between cryptocurrency prices and the number of posts and inquiries about them in social media and search engines.
Buy or sell?
The question from the economist’s headline answers:
“If you think as an investor that Bitcoin will work as well as it did in the past, you should have 6% of your Bitcoin portfolio. If you think it will do it halfway, you should have 4%. In all other circumstances, if you think it will be worse, you should stay 1% ”
Will BTC fail?
Researchers also asked themselves if Bitcoin could fall to zero and become useless. Their calculations reflect this possibility, but it is 0.3%. For comparison, the probability of events for fiat currencies is: for the euro around 0.009%, the Australian dollar around 0.003%, the Canadian dollar around 0.005%.
Ultimately, Tsyvinski states:
“Anything could happen. Maybe the statistical patterns we find will change completely, maybe tomorrow bitcoin will be banned by regulators, maybe it will be completely hacked, there are many things that somebody might consider. ”
What is your opinion?