The cryptocurrency prices depend only on the market sentiment - the author of the huge analysis convinces
Michał Wąsowski yesterday, 16: 2910 450
According to Dr. Bianchi, currently investing in cryptocurrencies is like trying to show who will be tomorrow's new Amazon Photo: Wit Olszewski / Shutterstock
According to Dr. Bianchi, currently investing in cryptocurrencies is like trying to show who will be tomorrow's new Amazon
Dr Daniele Bianchi, a scientist from Warwick Business School - one of the best British business universities - has analyzed the prices of the largest cryptocurrencies and the factors that influence them. He presented his conclusions in the work "Cryptocurrencies as an Asset Class: An Empirical Assessment".
Bianchi analyzed the weekly trading patterns of the fourteen largest cryptocurrencies, including bitcoin, ethereum, litecoin, monero, NEM or Ripple, but also considered dogecoin joke. His work covers the price period from April 2016 to September 2017.
The main conclusion: there is no correlation between any economic factors that investors would take into account when making decisions on the cryptocurrency market.
Crypto prices are driven only by investors' moods
In his conclusion from the analysis, Dr. Bianchi states: "the crypto-currency prices are not influenced by any economic factors, instead they are shaped only by changes in the investors' moods". The researcher explains that the valuations made by investors are based entirely on the rates of return from the past and the media noise and emotions accompanying declines and increases in crypto rates.
As Dr. Bianchi explains:
There are studies showing limited similarities between bitcoin and gold, but looking at the 14 largest cryptocurrencies, the high volatility of their prices means that it is difficult to consider them as a credible savings instrument both in the short, medium and long term.
Cryptocurrencies are not like traditional currencies, where the economy of the country influences the price. Instead, cryptocurrencies are more like investing in securities of high-tech companies. In fact, most of these cryptocurrencies were established due to unregulated public sales, similar to IPO, ie by ICO.
As a result, the cryptocurrency market may look similar to the dot.com bubble at the end of the 90s and it is possible that only a handful of them will survive, so for investors it is like deciding today who will be the new Amazon tomorrow.
At the same time, the researcher points out that although the cryptocurrency market records huge increases, it is still "dominated by several players":
Cryptocurrencies have more to do with investing in securities of companies than investing in traditional currencies. For example, holding bitcoin can be considered an investment in blockchain technology rather than simple speculation.
Taking this into account, the portfolio of returns is highly variable, which negates the chances of using the popular momentum strategy in trading in cryptocurrencies. Although the analysis of returns in the past gives some grounds for predicting future returns, the profitability of the momentum strategy on the cryptocurrency market is significant only in the short term.
In his conclusion, Dr. Bianchi adds that just as the value of eg the US dollar is subject to fluctuations due to numerous factors - interest rates, US trade deficit or government policy - cryptocurrency prices are based only on the perceived value of a platform or project related to a given coin.
The analysis of the scientist from Warwick Business School confirms the numerous opinions of the financial world's people who indicated that many cryptocurrencies - though not all - are purely speculative instruments. It is worth recalling the statement by Credit Suisse CEO Tidjane Thiam about the subject of bitcoin:
From what we know, the only reason for buying or selling bitcoin is to make money, which is the definition of speculation and the bubble.!
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