Cryptocurrencies

Cryptocurrency Stablecoins – A Review of Recent Research

15.February 2022

Since January 2020, the annualized volatility of Bitcoin stands around 70%, 6-times the volatility of commodities like Gold or Oil, more than twice the volatility of the S&P 500, and 10 times the volatility of the EURUSD exchange rate. Stablecoins represent a specific category of cryptocurrencies aiming to keep their value stable against a benchmark asset, usually a fiat currency like the US dollar. So how do stablecoins work, and do they really offer needed stability?

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Periodicity in Cryptocurrencies – Recurrent Patterns in Volatility and Volume

11.January 2022

The high-frequency data in cryptocurrency markets is available at any time of the day, which facilitates the studies of periodicity measures beyond what’s possible in other markets. The research paper by Hansen, Kim, and Kimbrough (2021) investigates the periodicity in volatility and liquidity in two major cryptocurrencies, Bitcoin and Ether, using data from three exchanges, Binance, Coinbase Pro, and Uniswap V2. In particular, the authors measure relative volatility and relative volume across days, hours, and minutes. Their results have confirmed the presence of recurrent patterns in volatility and volume in studied cryptocurrencies for the periods day-of-the-week, hour-of-the-day, and within the hour.

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NFTs: Important Preliminary Risk and Return Analysis

16.December 2021

NFTs are taking the cryptocurrency trading world by storm. NFTs stand for the non-fungible tokens which have emerged as another possible usage of blockchain technology. NFT can be used to record/verify/track the ownership of a unique – hence the non-fungible asset. Commonly, NFTs are connected with art (visual art, music, etc.), but there are also several decentralized finance or gaming-related projects.
Same as for the other blockchain-related projects, the critics are easy to find, so a research paper with hard data concerning the NFTs can be of great importance. The research paper by Mazur (2021) studies the NFT startups traded in the crypto markets. Therefore, the paper does not analyze the individual NFTs (such as some piece of art), but rather the whole projects and their tokens traded on the Binance crypto exchange.

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Estimating Rebalancing Premium in Cryptocurrencies

13.December 2021

Our new article investigates “rebalancing premium” or “diversification return” in cryptocurrencies which can be achieved by periodically rebalancing portfolios. We analyze whether the daily/ monthly rebalanced portfolios outperform a simple buy-and-hold portfolio of cryptocurrencies and under which conditions. Additionally, we also look at the various combinations of volatile cryptocurrency portfolios with low-risk bonds.

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Bitcoin Returns and Volatility Predicted by Bitcoin Exchange Reserves

9.November 2021

In the modern world full of technologies, cryptocurrencies are gaining popularity every day. The most famous cryptocurrency, bitcoin, was introduced in 2009. Ever since its launch and its subsequent success, when within a few years, its price skyrocketed, and it has been the subject of many price predicting studies. These, however, primarily focus on the market and macro factors, entirely omitting the nature of bitcoin – which is blockchain technology. In this study, authors Hoang and Baur try to capture and research this interconnection between behaviour of investors, bitcoin exchanges, and blockchain.

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What Drives Volatility of Bitcoin?

5.November 2021

Extremely high bitcoin returns and drawdowns come hand in hand with significant volatility. As Bitcoin is becoming an unignorable part of finance with substantial institutional participation, it is necessary to understand the key drivers of returns and volatility, which is comparably persistent as in other, more established asset classes. In addition, other cryptocurrencies are extremely correlated with Bitcoin, so understanding of key drivers of Bitcoin volatility might also carry to other cryptos. The research of Lyócsa et al. (2020) examines several possible drivers of the volatility. The authors study the realized volatility and its jump component and identify whether the volatility is influenced by various factors such as news about the regulation of bitcoin, hacking attacks on bitcoin exchanges, investor sentiment, and various types of macroeconomic news. The study identifies the significant impact of two intuitive factors: news about the regulation or cryptocurrency exchange hacks. Lagged volatility is also an essential factor, as shown by regression analysis. Regarding macroeconomic data, economic fundamentals do not seem to influence the volatility, except for forward-looking indicators (e.g., the consumer confidence index). Lastly, the authors study the investor sentiment extracted from Google searches, but only the positive sentiment has some impact. Overall, the research is a vital addition to the literature that helps us understand Bitcoin’s volatility.

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