Ethereum: death through economic abstraction?


From the start of this year, when the prices of encryption started to plummet, people sought a simple answer to an equally simple question: what is causing prices to fall? To those who have suffered through the plot, you may have already thrown your hands in disgust. But this is an important question that needs an answer.

After many readings, many studies blame the mechanical characteristics. Most of these studies are rather far-fetched. In reality, price movements in crypts have considerable similarities with each other category of activity. In any case, we are dealing with human emotions.

Why is it so important to isolate these factors? Because the same cause of losing over 65% of it can also bring Bitcoin back to $ 19,000. The same goes for most of the altcoins.

Academic Charm

So far this year the academic community has shown interest in trying to explain cryptocurrency movements based solely on the correlation analysis rather than on what actually causes price movements.

The most absurd of these efforts dates back to the beginning of this year, when the Federal Reserve of San Francisco joined Stanford University to declare that the advent of Bitcoin futures correlated with the burst of the Bitcoin bubble. It did not seem to bother anyone that in December there were almost no Bitcoin futures traded in Chicago.

This was not the only example, but in the interest of not writing a screenplay for a television sitcom, the others will simply be ignored.

Interpretation of Surveys

Applause to the workers as Coindesk to put together a survey of the first order of the Crypto community. They do a great job in finding and presenting data. However there is still a big hole in understanding what all the data mean.

For beginners, 83% of cryptographic owners are "uncredited". This is a key point. It means that their total assets are less than $ 1 million or earn less than $ 200,000 individually. About 84% of these people check the encryption prices more than once a day and check more than half every hour. This is a clear measure of their nervous sensitivity.

Successful investors often use data from this group as opposing indicators of market direction. If we had this data in May, we could have saved a package. Here because.

At the end of the second quarter of 2018, 65% of Coindesk pollsters believed that the encryption prices were undervalued. This is down from the 69% level of Q1 2018. When this falls to something as ridiculous as 40%, this will offer a strong encryption signal.

At last some of the scientific measures of the mind

Skeptics could deride this approach as excessively simplistic After all, with all the available date on things like hashrate, difficulty and profitability mining etc., The secret of behavior of the prices must be much more complex.

Well, according to a study by Yale University, Risks and Returns of Cryptocurrency, if you want to make money in a crypt, you can forget about hashrates and things like that. Here are their two main results.

Momentum Time-Series effect (TSME)

This means that when asset prices or cryptocurrencies increase, they tend to rise even higher. The authors of the study explain it this way:

"We have designed a simple strategy that says an investor should buy Bitcoin if its value increases more than 20% in the previous week." This method can be useful for predicting the best time for investors to buy and sell their crypt. "

Traditional equity investors have another term for TSME, called FOMO or Fear Of Missing Out aka greed.

Investor Attention Effect

The second key to killing a crypto is to that call "the investor's attention effect." If there's an abnormally high number of cryptocurrency mentions we've been studying on Google or on Twitter, returns will increase, and that's how things are measured. [19659003] An increase in a standard deviation of Google searches for bitcoins over the course of a week leads to increases in weekly returns of 1.84% and 2.30% at signs of one and two weeks.

circumstances, Ether investors could reasonably expect a 4.36% increase while Ripple investors will collect 10.86%.

Kudos To Yale

Yale's study results tell us that Google and Twitter are a good measure of FOMO. Sfo rtunately, they gave us a reliable measure for FOLE, the fear of losing everything. This is why Coindesk's quarterly survey says that when almost three quarters of the crypto owners believe that prices are undervalued, we should run for the hills, FOLE will arrive soon.

Featured image courtesy of Shutterstock.

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