- Researchers at Yale University have carried out analysis to determine what factors can predict crypto price movements.
- They said crypto markets demonstrate a strong momentum effect, and there’s a strong correlation between prices and general public interest.
- Yale economist Aleh Tsyvinski said the market is still subject to other factors such as regulation, which could change the statistical patterns.
Yale University financial experts have suggested a system of factors to predict price trends in major cryptocurrencies, according to an official statement by Yale News.
The new study was conducted by Yale economist Aleh Tsyvinski and Yukun Liu, a Ph.D. candidate in the Department of Economics, at the university, which is one of the seven prestigious Ivy League colleges in the US.
The study is reportedly the “first-ever comprehensive economic analysis of cryptocurrency and the blockchain technology”.
In the paper, the authors intend to provide a “risk-return trade-off” of major cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP), according to historical performance data.
The experts reportedly analysed the behavior of Bitcoin between 2011 and 2018, while Ripple and Ethereum data was tracked since their inception in 2012 and 2015, respectively.
In the study, Tsyvinski and Liu found that cryptocurrencies “have no exposure” to most common stock markets, as well as to returns of currencies and commodities and macroeconomic factors.
Instead, the researchers assert that “cryptocurrency returns can be predicted by factors which are specific to cryptocurrency markets”.
Among these factors is a “strong time-series momentum effect”.
Tsyvinski and Liu argue that if the price of Bitcoin increases over a week, it is likely keep growing over the following week.
The researchers note that a sharp increase of Bitcoin’s price stimulates higher demand in the market, which leads to bigger investments. The study says that the “momentum effect was stronger” for Bitcoin, but was “still statistically significant” with Ethereum and Ripple.
Apart from the momentum effect, the Yale researchers mention the factor of investor attention, which is a correlation between crypto prices and the number of posts and queries for cryptocurrencies on social media and in search engines. Ultimately, Tsyvinski said the market can still be affected by a number of different factors.
“All things can happen. Maybe the statistical patterns that we find are going to completely change. Maybe tomorrow Bitcoin is going to be prohibited by regulators, maybe it’s going to be completely hacked, there are many things one would take into account,” he said.
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