Yale Research Proposes Factors for Crypto Price Prediction

Yale Research Proposes Factors for Crypto Price Prediction

The researchers discovered that the cryptocurrency returns are exclusively predicted by factors that are specific to the cryptocurrency markets.

The crypto market is not your typical market.

The paper drafted by Yale University economists Yukun Liu and Aleh Tsyvinski argues that since cryptocurrencies have no exposure to most stock markets and macroeconomic factors, neither have they any exposure to returns of currencies or commodities, a completely different set of factors affect their price movements and thus returns.

The paper provided a "risk-return tradeoff" for the major cryptocurrencies including Bitcoin, Ethereum, and Ripple. Moreover, they studied the price data for Bitcoin from 2011 to 2018, along with that of Ripple's XRP and Ethereum's ether from the newer currencies' inceptions in 2012 and 2015 respectively, and calculated the probability of a drop in price to zero in a day.

Since this factors takes a momentum change within the market. Their reasoning is that Bitcoin price spikes come in short bursts, and that if value has increased quickly, it's likely to keep climbing for the short term. The first trend called the "momentum effect," describes Bitcoin builds momentum if it increases sharply within a week. And also, this leads to a bigger investment.

BTC  USD- 240 Min Chart

Researchers also comment that there is an active social component to the development of trends. Tsyvinski mentioned that "All things can happen". "Maybe cryptocurrency will completely change its behavious, but now the market does not think it will".

Bitcoin (BTC) is down almost 7% in 24 hours, at time of writing, with one BTC now trading at $6,135.91, according to averaging data from CoinMarketCap (see below). In fact, many were optimistic a few weeks ago thinking that a Bitcoin ETF would've been approved soon by the US Securities and Exchange Commission.

Cameron and Tyler Winklevoss' application was denied once again by the US SEC for the second time around. He believes that things will be bullish once the agency approved the application.

The fact that Bitcoin is teetering on the edge of the $6,000 mark does not look promising for the coin's future. Considering the volatility of the market, this might actually help in giving investors an idea regarding the short-term tendencies of Bitcoin and other cryptocurrencies.

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