A new study has revealed that the cryptocurrency prices including Bitcoin and Ethereum depend not on any economic indicators, but by the mood of investors.
Daniele Bianchi, an assistant professor of finance at Warwick Business School studied the price pattern of 14 largest cryptocurrencies in his research paper titled Cryptocurrencies as an Asset Class: An Empirical Assessment. Bianchi is of the opinion that the pattern reflects past returns of investors, apart from the hype and sentiments they went through as the value rose and fell. She saw that there is no correlation with any economic indicators that investors would base their decisions on.
“There is research showing limited similarities between Bitcoin and gold, but looking across the 14 biggest cryptocurrencies the high volatility of their price means that they can hardly be seen as a reliable savings instrument in the short-term, let alone the long or medium term,” said Dr. Bianchi.
This behaviour is probably because Bitcoin and other cryptocurrencies are not part of the government or any financial institutions. The study indicates that digital currency investment is similar in that sense to equity buying in a high-tech company rather than a normal currency. The price variation of bitcoin over the past six weeks is enough to prove the study as the cost swung between $6,500 and $10,000.
Giving more details of it, Dr. Bianchi explained that since cryptocurrency is still in its infancy, high volatility and even higher uncertainty in prices is common. Demand pressure is what that influences cryptocurrency market prices.
Dr. Bianchi compared the growth of the cryptocurrency trade to that of the dot-com boom that took place between 1997 and 2001. The period saw many individuals and companies investing in internet firms, which eventually resulted in the collapse of many firms.
By explaining what really affects cryptocurrency prices, Professor Bianchi proved that most cryptocurrency companies will collapse in the long run, and only a few handfuls will actually survive. He further added that for investors, it is more like choosing who the next Amazon will be.[The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views and/or the official policy of the website. ]