The National Bureau of Economic Research (NBER) recently published a study that hinted that cryptocurrency markets are influenced by the type of attention they receive, not like traditional financial markets.
Unlike other traditional financial assets, cryptocurrencies are not responsive to the market parameters as traditional financial tools but instead, having “cryptocurrency specific factors,” as stated in the non-profit’s report which was released this week. These factors are investor interest and market motion, defined in the report as “time-series cryptocurrency momentum at the daily and weekly frequencies.”
Yale University economists Yukun Liu and Aleh Tsyvinski, the two authors which wrote the paper, indicate that, as opposed to popular belief, “the markets do not view cryptocurrencies similarly to standard asset classes.” The paper named the price trackers from CoinDesk on Bitcoin, Ethereum and XRP price as the source that provided the market data.
By looking at price data series from time frames over several years, the paper compared the actual returns with the estimated returns by employing a standard finance pricing model called CAPM. Liu and Tsyvinski went on to draw comparisons between cryptocurrency returns and traditional assets, as well as macroeconomic factors like consumption increase.
All of these results may seem statistically insignificant, but they point towards an entire new matter in other instances, which Liu and Tsyvinski classified as the measure of returns a day or week before. Basically, the price increase over one up to a week could be forecasted by a single daily return, while a weekly return could forecast how the market will act on a one, two, three or four-week period.
What’s even more remarkable, is that the study included data from consumer activity on search engines such as Google and social media sites like Twitter. According to these findings, a standard deviation surge in searches for keywords like “bitcoin” predicted a small increase in the token’s value in the next weeks.
According to the report, just on standard deviation surge in the keyword search on Google determined a 2.75% price increase on average. In a similar manner, a standard deviation increase in Twitter post counts led to a 2.5 percent increase in crypto prices. Then again, a standard deviation increase in searches with terms such as “bitcoin hack” led a small drop in bitcoin’s price.