It seems like everyone wants to know the best time to buy crypto – right?
Two economists from Yale University have recently researched and outlined a basic strategy for identifying the best buying opportunities for cryptocurrencies. After studying the past performance of the three most popular digital assets, they identified a couple of methods that will help any investor to predict price movements.
One of the things that makes choosing an entry point for buying crypto hard is – volatility. Bitcoin is an example of that and a cryptocurrency which tends to swing over just a few hours.
The two Yale economists believe that they have identified two factors that can provide information about the potential price movements. In their paper which is named Risks and Returns Of Cryptocurrency, they explore the historical price patterns in an effort to identify the factors that can determine the price movements over a short period of time.
After studying the price movements during the period 2011-2018 for Bitcoin, 2015-2018 for Ether and 2012-2018 for Ripple, they were able to identify the two factors – naming them the “momentum effect” and the “investor attention effect”.
The first factor is the momentum. In the report, they note that the price of Bitcoin has many times increased rapidly during a single week. As Tsyvinsky (one of the researchers) explained to CNBC:
“Momentum is actually something simple… If things go up, they continue to go up on average, and if things go down, they continue to go down.”
So, the momentum basically focuses on buying currency following a week in which the price had experienced a sharp upwards trend – around 20% – and selling a week later.
The second factor was the “investor attention effect” which simply means that the amount of interest around cryptocurrencies can be another thing to help with the prediction of price movements. As they said in the report, Google Trends and Twitter posts are good indicators of investor attention.
“A one-standard-deviation increase in the Twitter post count for the word ‘bitcoin’ yields a 2.50 percent increase in the 1-week ahead Bitcoin returns.”
Still, the pair of Yale University researchers also stressed that this is not advice to investors – and the metrics are neither hard nor fast rules.
“A one-standard-deviation increase in the Twitter post count for the word ‘bitcoin’ yields a 2.50 percent increase in the 1-week ahead Bitcoin returns,” Tsyvinsky concluded.
DC Forecasts is a leader in many crypto news categories, striving for the highest journalistic standards and abiding by a strict set of editorial policies. If you are interested to offer your expertise or contribute to our news website, feel free to contact us at [email protected]