Economists from Yale University, USA presented a basic strategy to determine the best time to buy cryptocurrency. By studying the dynamics of prices of three well-known digital currency in the past, scientists have proposed two methods to predict of course.
Note, the volatility of cryptocurrency markets is forcing any buyer of digital assets select a starting point for future decisions. The most popular cryptocurrency — bitcoin — is known for sharp jumps of a course, even for several hours. In recent days, bitcoin lost some of its value, including a 12 percent decline over 24 hours. Most experts attributed the new downturn a statement by the American Commission on securities and exchange Commission (SEC) of the intention to defer the decision of bitchology exchange-traded funds (ETFs), which in the community was looking forward to.
However, economists from Yale believe that they were able to identify two factors that can be a useful tool for the prediction of the price movement. In his work entitled “Risks and profitability of cryptocurrency” Professor of Economics Aleh Tsyvinski (Aleh Tsyvinski) and a candidate for the degree of doctor of Sciences Yukun Liu (Liu Yukun) rely on the dynamics of previous periods. So, considering the price movement of bitcoin between 2011 and 2018, ether — from 2015 to 2018 and XRP from 2012 to 2018, scientists have identified two factors that can signal imminent change of course in the short term: “momentum effect” and “effect of investor attention”.
“Momentum effect” is effective management of such assets as stocks, bonds and currencies, however, the researchers are sure that the rule applies to cryptocurrencies.
Economists have observed that if exchange rate for bitcoin rose rapidly in the course of a week, he would probably have continued to grow over the next weeks.
“Momentum, in fact, is just… If prices rise, they on average and continue to grow, if reduced — continue to decline,” explained a chair in an interview with CNBC.
In the work of the researchers explained that, in accordance with this model, the safest strategy for trading digital assets, the lowest risk is to buy bitcoin after the price has increased dramatically to 20% in one week, and sell for 7 days after purchase. According to the findings of scientists adhering to this strategy, “the investor can get 11% return during the reporting periods.”
In this case a chair and his colleague point out that in previous periods, the effect was stronger in the case of bitcoin than with ether, XRP, though in the latter respect, he is “statistically significant”.
The second factor, called “the effect of investor attention”, shows the level of interest in cryptocurrency can be used as an effective tool to predict the dynamics of the course. The researchers note: Google trends and Twitter posts are excellent indicators of investor attention.
“The growth of one standard deviation in the post on Twitter that mentions the word “bitcoin”, brings a 2.5% increase in the profitability of bitcoin for 1 week ahead,” say the economists.
Meanwhile, the opposite is true. For example, the growth in the number of users specifying in the search box phrases like “hacking bitcoin”, in all surveyed periods were preceded by course fall.
Analyzing search queries on Google, mentioning bitcoin, the scientists noted that this approach allows to predict the return “1 and 2 weeks forward.”
For the cryptocurrency token startup Ripple XRP impact of this factor helped to predict the ability to obtain the income within 1 of the following week, to live — “for 1, 3 and 6 weeks.”
It should be noted, for his report, scientists do not repeat, do not give advice to investors: historical data is no guarantee of future “needs” of price dynamics. As noted Tsyvinski in an interview with CNBC, even the use of strategies based on academic research would not be able to protect against the risks facing the investor: it is important to remember external factors such as international regulation.
“Everything can happen anything… Perhaps the statistical patterns we found will change. Maybe bitcoin will be banned by the regulators or completely hacked, there are many things to take into account”.
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