The crypto market is not your typical market. This is the most summarized way to describe the conclusions of a study conducted by Yale University on the behavior of the cryptos and their relationship with the traditional laws and indicators applied to the stock market.
Economists Aleh Tsyvinski and Yukun Liu conducted the study which according to Yale university is the “first-ever comprehensive economic analysis of cryptocurrency and the blockchain technology.
In an official publication on Yale News, researchers suggested some technical and social factors that would help predict the price trends of the most important cryptos such as Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP).
Economists analyzed the historical performance of these cryptos. In the case of Bitcoin (BTC), they examined its trajectory since 2011, while in the case of Ripple and Ethereum, the studies were extended from the birth of these blockchains in 2012 and 2015 respectively.
The results were quite interesting. According to the studies, the factors that most influence the volatility of cryptocurrency prices are associated with social situations rather than aspects common to traditional markets.
Cryptocurrency returns can be predicted by factors which are specific to cryptocurrency markets.
According to the economists, cryptos “have no exposure” to most common stock markets or macroeconomic factors that could significantly influence their fluctuating prices.
Techical Analysis… What? Social Research is The Way to Go
For the researchers, these specific factors include what is known as the momentum effect, a situation in which the demand for Bitcoin tends to increase as the price rises over short periods of time. This feature is also “statistically significant” with Ethereum and Ripple.
Researchers also comment that there is an active social component to the development of trends. Being the crypto-verse a more united “community,” Tsyvinski and Liu found a correlation between the prices of cryptos and their presence on social networks and search engines.
However, it is important to note that the market for cryptocurrencies is not yet mature enough to establish ‘laws.’ Some indicators have been ‘created’ or adapted to the reality of cryptocurrencies -such as the BMI-; however, there is a possibility that these ‘factors’ will change over time. The study concluded with a few words that show that nothing is written in crypto-verse:
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.