Economists at Yale University have developed a model to predict the price of Bitcoin based on the past behavior of the cryptocurrency. Economists have identified two main factors influencing the price of Bitcoin.
Over the past few months, the well-known first cryptocurrency has fluctuated from 6,000 to 9,000 US dollars, while its current value fluctuates in the corridor between two levels of 6090.00 USD and 5920.00 USD, however, There are patterns within these market movements.
Economics professor Oleg Tsyvinsky and economics candidate Yukun Liu analyzed seven years of data on the price of Bitcoin to find out what indicators can be used to predict its price in the future. Their findings, published by the National Bureau of Economic Research, found that Bitcoin and other cryptocurrencies are completely different from fiat currencies and other financial products in terms of the factors that influence their movement in the market.
The researchers identified two main criteria that can be used to predict the behavior of the price of Bitcoin.
The “momentum effect”
The first important factor is price movement. This means that if the value of an asset goes up sharply during the week, it will maintain the trend and continue to rise, at least in the short term for 1-2 weeks.
“Investor Attention Effect”
The percentage of investor interest and attention around a crypto asset significantly increases its price. Thus, an analysis of the surge in Google searches for Bitcoin was the main indicator that the price of the coin will increase over the coming weeks.
And negative news or investor reaction predicts a decline in price. An increase in searches for the phrase "bitcoin hack" also predicts a decline in the price.
Economists have developed a "simple strategy" that investors could use to take advantage of this trend. According to the strategy, an investor should buy Bitcoin if its value increased by more than 20 percent in the previous week.
Economists also calculated that there is a 0.3 percent chance that Bitcoin's value will fall to zero. This probability may seem very small, however, it is still several percentage points higher than in traditional currencies such as the euro (0.009% probability) and the Australian dollar (0.003% probability).
Economists have also concluded that it is optimal to keep from 1 to 6 percent of investments in crypto assets.
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