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Mood beats economic factors

23 May 2018

New research has found that cryptocurrency prices are not influenced by any economic factors and instead are driven purely by the mood swing of investors.

A study by Warwick Business School of the 14 largest cryptocurrencies (including Bitcoin) from April 2016 to September 2017 found no correlation with any economic indicators or commodities that investors would base decisions on.

Instead, ‘Cryptocurrencies as an Asset Class: An Empirical Assessment’ concludes that pricing is entirely influenced by past returns and the hype and emotion of investors as they watch the price climb or drop.

Author Daniele Bianchi suggested the market for cryptocurrencies looks similar to the dot.com bubble at the end of the 1990s, and “it may be that only a handful of them survive, so for investors it is like choosing who will be today’s Amazon”.

She explained: “These are not like normal currencies where a country’s economy will influence the price. Instead they share similarities to investing in an equity from a high-tech firm. As a matter of fact, most of these cryptocurrencies come to existence through unregulated crowd sales similar to IPOs, the so-called Initial Coin Offering.”

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