Cryptocurrencies

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.

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.

We started to systematically search for systematic cryptocurrency trading strategies in academic research approximately two years ago. This article is a short analysis of the performance of systematic crypto strategies in 2021. We conclude that non-price predictors offered advantages over price-based only trading strategies in the previous year-to-date and 12-months periods.

It is striking how cryptocurrencies are both similar and dissimilar to the more established asset classes at the same time. On the one hand, many findings from traditional asset classes also apply to this novel class. On the other hand, this “new” world with its own characteristics brings many novel “problems” that attract researchers. This week’s blog presents several research papers connected to the pump and dump schemes in cryptos. These pumps and dumps are nothing new, and we already know them from the stock market. However, there are some notable differences…

Bitcoin and other currencies are frequently discussed nowadays. The debate has emerged mainly because of the strong uptrend in the Bitcoin price. In this blog post, we will leave the price patters to others. We will instead present interesting novel research connected to the well known theoretical model in the fiat currencies – the Covered Interest Rate Parity (CIP). If the CIP holds, interest rates and both the spot and forward rates of two countries should be in equilibrium. Novel research of Franz and Valentin (2020) examines the CIP in BTC/USD pair. The CIP theory states that there should be no arbitrage opportunities, but how the CIP holds in such a volatile market, where individual investors/traders seem to dominate? According to research, there were significant CIP deviations in the past, but it changed with the launch of BTC/USD futures in CME and high-frequency traders’ market entry. Moreover, the second event was much more successful in the reduction of deviations.