Cross-Spectral Analysis Reveals Drivers of Cryptocurrency Value
Identifying Key Factors Influencing Cryptocurrency Market Behavior
A recent study utilizing cross-sectional empirical data of 66 popular cryptocurrencies has identified three primary drivers of cryptocurrency value, offering insights into the factors that influence market behavior in the emerging digital asset space.
Data and Methodology
The study examined six major forex currencies and six cryptocurrencies over the period from September 1, 2015, to December 29, 2017. Using a regression model, the researchers sought to determine the common factors underlying price fluctuations in these digital assets.
Key Findings
The regression analysis revealed that three main factors contribute to cryptocurrency value:
- Risk-On Trading Environment: When market sentiment is positive, investors tend to allocate funds to riskier assets, including cryptocurrencies.
- Volatility: Market uncertainty, as measured by volatility indices, has a negative impact on cryptocurrency prices.
- Exchange Rate: The exchange rate between cryptocurrencies and fiat currencies is a significant driver of value, indicating that global economic conditions play a role in determining cryptocurrency prices.
The study also highlighted the strong correlation between the euro (EUR) and the Swiss franc (CHF), emphasizing the importance of considering external factors when analyzing cryptocurrency market dynamics.
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