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Yale University economists have invented a technique to predict the price of bitcoins based on the past behavior of cryptocurrency.
The notoriously volatile cryptocurrency has fluctuated between $ 6,000 and $ 9,000 in recent months, with its current value suspended around $ 6,343, yet there are models within these market movements.
Yukun Liu and Aleh Tsyvinski analyzed seven years of bitcoin price data to understand which indicators can be used to determine the future price of bitcoins. Yale economists also studied ripple and ethereum to see if other cryptocurrencies followed the same bitcoin price patterns.
The volatile history of Bitcoin in the images
1/8 Satoshi Nakamoto creates the first bitcoin block in 2009
On January 3, 2009 the bitcoin genesis block appeared. It was less than a year after the pseudonym creator Satoshi Nakamoto detailed the cryptocurrency in a document titled "Bitcoin: a peer-to-peer electronic cash system"
Reuters
2/8 Bitcoin is used as currency for the first time
On May 22, 2010, the first bitcoin transaction took place in the real world. Lazlo Hanyecz bought two pizzas for 10,000 bitcoins – the equivalent of $ 90 million at today's prices
Lazlo Hanyecz
3/8 Silk Road opens for business
Bitcoin soon gained notoriety for its use on the obscure web. The Silk Road market, established in 2011, was the first of hundreds of sites to offer illegal drugs and services in exchange for bitcoins
4/8 The first ATM bitcoin appears
On October 29, 2013, the first ATM bitcoin was installed in a coffee shop in Vancouver, Canada. The machine has allowed people to exchange bitcoins for cash
REUTERS / Dimitris Michalakis
5/8 The fall of MtGox
The biggest bitcoin exchange in the world, MtGox, has filed for bankruptcy in February 2014 after losing nearly 750,000 of its bitcoin customers. At the time, this was about 7% of all bitcoins and the market inevitably crashed
Getty Images
6/8 The real Satoshi Nakamoto would stand up
In 2015, the Australian police broke into Craig Wright's house after the businessman claimed to be Satoshi Nakamoto. Subsequently rescind the complaint
Getty Images
7/8 Bitcoin's big check
On 1 August 2017, an unresolvable dispute within the bitcoin community saw the division of the network . Bitcoin's underlying blockchain technology fork has spawned a new cryptocurrency: Bitcoin crate
REUTERS
8/8 Bitcoin price rockets
By the end of 2017, the bitcoin price is rose to almost $ 20,000. This represented an increase of 1,300% compared to its price at the beginning of the year
Reuters
1/8 Satoshi Nakamoto creates the first bitcoin block in 2009
On 3 January 2009, the block of genesis of bitcoins appeared. It was less than a year after the pseudonym creator Satoshi Nakamoto detailed the cryptocurrency in a document titled "Bitcoin: a peer-to-peer electronic cash system"
Reuters
2/8 Bitcoin is used as currency for the first time
On May 22, 2010, the first bitcoin transaction took place in the real world. Lazlo Hanyecz bought two pizzas for 10,000 bitcoins – the equivalent of $ 90 million at today's prices
Lazlo Hanyecz
3/8 Silk Road opens for business
Bitcoin soon gained notoriety for its use on the obscure web. The Silk Road market, established in 2011, was the first of hundreds of sites to offer illegal drugs and services in exchange for bitcoins
4/8 The first ATM bitcoin appears
On October 29, 2013, the first ATM bitcoin was installed in a coffee shop in Vancouver, Canada. The machine allowed people to exchange bitcoins for cash
REUTERS / Dimitris Michalakis
5/8 The fall of MtGox
The biggest bitcoin exchange in the world, MtGox, filed for bankruptcy in February 2014 after losing nearly 750,000 of its bitcoin customers. At the time, this was about 7% of all bitcoins and the market inevitably crashed
Getty Images
6/8 The real Satoshi Nakamoto would stand up
In 2015, the Australian police broke into Craig Wright's house after the businessman claimed to be Satoshi Nakamoto. Subsequently rescind the complaint
Getty Images
7/8 Bitcoin's big check
On 1 August 2017, an unresolvable dispute within the bitcoin community saw the division of the network . Bitcoin's underlying blockchain technology fork has spawned a new cryptocurrency: Bitcoin crate
REUTERS
8/8 Bitcoin price rockets
By the end of 2017, the bitcoin price is rose to almost $ 20,000. This represented an increase of 1,300% compared to its price at the beginning of the year
Reuters
Their findings, published in the The National Office of Economic Research have established that bitcoins and other cryptocurrencies are completely separate from shares, currencies and other commodities in terms of factors that influence their market movements
"On the contrary, we show that cryptocurrency returns can be predicted by market-specific factors of cryptocurrencies, "explains the study.
"In particular, we establish that there is a strong momentum effect in time series and that proxies for investors' attention strongly predict the return of cryptocurrency."
This momentum effect was found to strongly influence cryptocurrency, which means that if bitcoin is working well then it is likely to continue to do so, at least in the short term.
Economists have designed a "simple strategy" that investors could follow to take advantage of this trend. According to the strategy, an investor should buy bitcoins if its value increases by more than 20% in the previous week.
"This strategy generates exceptional returns," Tsyvinski told Yale News.
Economists also calculated that there is a probability of 0.3% that the value of the bitcoin falls to zero and becomes useless. This may seem very small, however it is still of varying degrees of magnitude compared to traditional currencies such as the euro (0.009% probability) and the Australian dollar (0.003% probability).
The end of the study concerned the question of how much a typical investor should keep in bitcoin and cryptocurrencies, concluding that it should be between 1% and 6%.
"Obviously, we must remember that, as with any other assets, past performance is not a guarantee of future returns," said Tsyvinski.
"Perhaps the cryptocurrency will completely change its behavior, but currently the market does not think it will."
