Yale experts predict price trends in cryptocurrencies

August 09, 2018
Chris Wheal

Financial experts at Yale University believe they can predict future price trends in the major cryptocurrencies, a story on Yale News asserts.

Yale experts claim to be able to predict future moves in cryptocurrency prices

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”.

Historical performance

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

Strategy

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.

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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