Yale experts predict price trends in cryptocurrencies
Financial experts at Yale University believe they can predict future price trends in the major cryptocurrencies, a story on Yale News asserts.
A study, conducted by Yale economist Aleh Tsyvinski and PhD candidate Yukun Liu, claims to be the “first-ever comprehensive economic analysis of cryptocurrency and the blockchain technology”.
The authors studied historical performance data of major cryptocurrencies bitcoin, ethereum and ripple and have provided evidence that potential returns from crypto investment are higher than risk implied by the sector’s volatility.
They found that cryptocurrency prices behaved like no other asset class. They were not like stocks.
“For stocks, we examined 155 potential risk factors in the finance literature and found that almost none of them account for the returns of cryptocurrencies,” said Tsyvinski.
Nor do they behave like traditional currencies or commodities: “Our findings cast doubt on the popular narratives that cryptocurrencies derive their value from either serving as a unit of account, such as the usual currencies, or as a store of value, such as precious metals,” He added.
Asset pricing tools
Having established that cryptocurrencies do not behave like other assets – have no relationship with economic or business sentiment – they found that digital currencies could be better understood by applying common asset pricing tools to factors specific to them:
- Momentum effect: when an asset increases in value, it will tend to rise even higher – a feature of every known asset class which strongly affects cryptocurrency
- Investor attention: high numbers of mentions of cryptocurrency price rises in the press and social media will positively affect prices
To take advantage of the momentum effect the authors devised a strategy to buy bitcoin if its value increases more than 20% in the previous week.
As always, any investment advice comes with a strong caveat emptor: buy only what your particular risk profile suggests – don’t be carried away by the hype. And finally, past performance is never a guarantee of future returns.