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Yale Economists Name Factors Contributing To Bitcoin's Growth

Published: 10/08/2018
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Yale researchers conducted the first large-scale economic study of cryptocurrencies and defined the factors that determine price trends on the crypto market, YaleNews reports.

 

Economists Aleh Tsyvinski and Yukun Liu studied the exchange rate's behavior of three major cryptocurrencies in terms of capitalization, namely bitcoin, ether, and Ripple, since they entered the market. The authors of the study determined the risk-reward ratio of these assets using Sharpe ratio, according to which the effectiveness of an asset is measured by its ability to adjust to risks, in this case – to volatility.

 

Tsyvinski and Liu calculated that the crypto profitability exceeds the risks caused by volatility, and the effectiveness of cryptocurrency is at a "more or less normal" level compared to other assets.

 

The scientists found that bitcoin, ether, and Ripple are not affected by stock markets, physical goods, or other cryptos, their profitability depends only on the system of specific crypto market factors.

 

The first factor is momentum effects. According to Tsyvinski and Liu, if the bitcoin rate goes up within a week, the growth can be expected next week too. The economists stress that a sudden price increase stimulates high demand and a greater investment flow, however, this is only true for bitcoin.

 

Investors' attention is the second factor of profitability, which is expressed by the dependence of cryptocurrency prices on the search frequency in Google, for instance. Scientists distinguish negative attention as well; for example, the search query "bitcoin hack" will lead to drop in token price.

 

High level of volatility often discourages novice crypto investors. Previously it was reported how to avoid mistakes in crypto trading.

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