Add Bitcoin To Your Investment Portfolio Even If You Are The Staunchest Opponents Of The Cryptocurrency World!
The Economics Professors Aleh Tsyvinski and Yukun Liu at Yale University 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, 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. 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. Cryptos “have no exposure” to most common stock markets or macroeconomic factors that could significantly influence their fluctuating prices.
Among these factors is a “strong time-series momentum effect”, a situation in which the demand for Bitcoin tends to increase as the price rises over short periods of time. Tsyvinski and Liu argue that if the price of Bitcoin increases over a week, it likely keeps growing over the following week.
The researchers note that a sharp increase in Bitcoin’s price stimulates a higher demand in the market, which leads to bigger investments. The study says that the “momentum effect was stronger” for Bitcoin, but was “still 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.
The study titled, Risks and Returns of Cryptocurrencies, also outlines a very positive feature of cryptocurrencies when compared to traditional stocks and bonds. Using the Sharpe’s ratio, Tsyvinski demonstrated that digital currencies show higher potential for return, despite their increased volatility.
According to Aleh Tsyvinski, Bitcoin should be an imperative part and comprise a minimum of 1 percent of the portfolio just for diversification purposes, regardless of whether you are enthusiastic about the cryptocurrency or not. The research recommends a portfolio with at least 6 percent in Bitcoin. Those who are less enthusiastic about the world’s most popular cryptocurrency should hold 4 percent of it.
The study seems to fall in line with the observations of another scholar – Professor Dragan Boscovic from the Arizona State University. Speaking on the matter of cryptocurrencies, he noted:
Institutional investors are recognizing this new asset as a valued investment opportunity; this will encourage individual investors. It will also encourage consumers and small shops to start trading in cryptocurrency.
The articles were published for the first time at https://cryptocrimson.com/yale-university-research-predict-bitcoin-btc-prices/ and https://bitcoinist.com/new-yale-study-every-portfolio-must-include-at-least-6-bitcoin/Tweet