Home / Crypto Currency / Yale Economists Share Strategies to Strongly Forecast Bitcoin Returns

Yale Economists Share Strategies to Strongly Forecast Bitcoin Returns


Yale

Advertisement

At the time when the cryptocurrency industry has recorded a loss of more than $30 billion, two Yale economists believe traders can strongly forecast the volatile market using “potential predictors for cryptocurrency returns.”

Aleh Tsyvinski and Yukun Liu published a new study, titled “Risks and Returns of Cryptocurrency,” after researching factors that could accurately predict the cryptocurrency returns. The study found that cryptocurrencies have low exposure to the macroeconomic factors that usually influence stock, currency, and commodity markets. However, there are still some strategies that are common to both traditional and cryptocurrency price trends.

To find them, Tsyvinski and Liu analyzed the historical data of top coins, including Bitcoin, Ethereum, and Ripple, and eventually determine two key factors that could predict the market’s next trend. They are called “Momentum Effect” and “Investor Attention Effect”.

Momentum Effect: Up means Up, Down means Down

The Yale economists investigated the daily and weekly frequencies of Bitcoin, Ethereum, and Ripple price actions, and what they believe to be a meaningful tool to predict Bitcoin price trends – the “time-series cryptocurrency momentum.”

In general, the momentum effect compares trends with their timeframes. For instance, a substantial price weekly rally – over 20% – should be taken as a sign to purchase the cryptocurrency. A trader, then, should hold the asset for at least a week before selling it at a profitable margin. Similarly, an extended downside momentum – again weekly – should be taken as a sign to quickly exit the market, before the risk intensifies.

“Momentum is actually something simple,” Tsyvinski told CNBC. “If things go up, they continue to go up on average, and if things go down, they continue to go down.”

Investor Attention Effect: Social Trends

The Yale study constructed the deviation of Google Searches for the keywords “Google,” “Ripple,” and “Ethereuem” and compared the weekly outcome with their respective price data. The average increase in the social media queries for each asset indicated that the price of the asset will increase in the coming weeks.

Similarly, negative investor attention consorting with keywords like “bitcoin hack” predicted a decrease in price.

A Twitter-based research also assisted the study. Tsyvinski and Liu that the increase in the number of posts about Bitcoin on Twitter predicted an upside in the coming weeks.

“A one-standard-deviation increase in the Twitter post count for the word “Bitcoin” yields a 2.50 percent increase in the 1-week ahead Bitcoin returns,” the paper revealed.

Data Output of Bitcoin, Ethereum and Ripple

The study compared the statistics of Bitcoin on the daily, weekly, and monthly basis, and also compared to those of currencies, stocks, and commodities. It found that “at the daily frequency, the mean return [was] 0.52 percent and the standard deviation [was] 5.55 percent; at the weekly frequency, the mean return [was] 3.79 percent and the standard deviation [was] 16.64 percent; at the monthly frequency, the mean return [was] 21.60 percent and the standard deviation [was] 69.46 percent.”

Pictured: An image excerpt from the Yale Study, “RISKS AND RETURNS OF CRYPTOCURRENCY.”

Overall, the magnitude of the outcomes derived from Bitcoin statistics was higher than those for traditional asset classes.

As for Ripple and Ethereum, their returns had a higher mean return and standard deviation than those of Bitcoin. However, their Sharpe ratios, the average profit earned, was somewhat comparable to the Sharpe ratios of Bitcoin returns.

Featured image from Shutterstock.

Follow us on Telegram or subscribe to our newsletter here.
Join CCN's crypto community for $9.99 per month, click here.
Want exclusive analysis and crypto insights from Hacked.com? Click here.
Open Positions at CCN: Full Time and Part Time Journalists Wanted.
Advertisement
Read more

Check Also

Is This the End of Crypto?

Bitcoin’s tumbled to a 15-month low. Ethereum is circling the drain. Despite announcements of a Swiss ETP, more regulated bitcoin futures in Q1, a German stock exchange launching a crypto platform, and institutional investors getting in, the market keeps on hemorrhaging. Is it time to jump ship? Cut your losses and get out while there’s something to get out with? Is this the end of crypto? The short answer to that would be, no one knows. It’s possible, of course. Apart from miniature countries floating in the Mediterranean with reputations for accepting money from questionable sources, regulators haven’t been welcoming. The ICO model is all but dead. The scaling headache is now a constant migraine, and Mark Zuckerberg has a net worth to rival the market cap of Bitcoin. Even those inside the industry like Barry Silbert are starting to sound positively glum. We've seen half a dozen fundraising deals fall apart over the past month after the lead pulled out. All is not well in crypto VC investor land Good time to remind founders that a signed term sheet does not equal cash in the bank — Barry Silbert (@barrysilbert) December 12, 2018 Die-Hard Crypto Fans Keep the Faith Yet, here we still are. We may be losing money, but there are plenty of us not losing faith. Pomp remains bullish to the end (although, he’d look a little silly if he didn’t). When crypto prices are down, the naysayers take a victory lap. They yell “told you so!” over and over again. Their enthusiasm will be short lived though. History will be unkind to those who bet against technology. — Pomp (@APompliano) December 13, 2018 And there are plenty of others still flying the flag for the longevity of crypto, including the likes of Nasdaq and Bakkt. Is This the End of Crypto? Erik Voorhees once told me you can’t change the world in a smooth predictable curve. And he’s certainly seen his share of ups and downs in this space. What this continued bear market has shown if anything is that the blockchain revolution is going to take longer than we thought. The bear market may not be over any time soon, but the heart of crypto is still beating and it will outlast the premature victory dances. The post Is This the End of Crypto? appeared first on NullTX.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Disclaimer: Trading in bitcoins or other digital currencies carries a high level of risk and can result in the total loss of the invested capital. theonlinetech.org does not provide investment advice, but only reflects its own opinion. Please ensure that if you trade or invest in bitcoins or other digital currencies (for example, investing in cloud mining services) you fully understand the risks involved! Please also note that some external links are affiliate links.