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Crypto-asset Research Survey

April 25, 2018 • Posted in Currency Trading

What is the body of academic research on crypto-assets? In their March 2018 paper entitled “Cryptocurrencies as a Financial Asset: A Systematic Analysis”, Shaen Corbet, Brian Lucey, Andrew Urquhart and Larisa Yarovaya review available research on cryptocurrencies as financial assets. They define crypto-assets as peer-to-peer electronic transaction systems which allow payment by one party directly to another without an intermediary. Such assets are therefore infinitely divisible and have no physical representation or association with higher authority. Theses assets derive value from the security of an algorithm that records all transactions. The authors segment research into five areas: (1) bubble dynamics, (2) regulation, (3) cybercriminality, (4) diversification, and (5) market efficiency. Based on 87 papers published during 2013 through early 2018 (accelerating in frequency), they conclude that:

  • While there are over a thousand crypto-assets, research to date focuses narrowly on Bitcoin. Most papers employ data commencing in 2010, with Bitcoincharts.com and Coindesk.com the most common sources.
  • The most frequent crypto-asset research topics are: (1) underlying mechanisms; (2) price dynamics and related diversification benefits; and, (3) market regulation and cybercrime.
  • Three interrelated issues influencing perception of legitimacy and trustworthiness of crypto-assets are:
    1. Suspicion of inherent pricing bubbles, amplified by stock price behaviors of publicly traded firms that announce incorporation of blockchain technology.
    2. Regulatory obstacles, with many countries threatening to ban or constrain use and trading.
    3. Actual and potential illicit use exploiting anonymity, and hacking of underlying transaction infrastructures.
  • A further concern is that crypto-asset mining growth may drive unsustainable levels of electricity consumption.
  • Findings (moderated by lack of mature market data) include:
    • Bitcoin appears to diversify many other currencies and asset classes. There may be a strong negative correlation between investor interest in gold versus crypto-assets.
    • Similar crypto-assets exhibit high return correlations. 
    • Crypto-asset markets may be maturing, but still exhibit inefficiencies.

In summary, the body of crypto-asset research, based on arguably immature market data, suggests considerable obstacles to widespread investment and adoption.

As noted, immaturity of crypto-asset products and practices (and therefore associated research data) undermines confidence in all findings.

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