According to a recent study whose findings are compiled in an article posted on Independent, the prices of most of the common altcoins in the market such as Ethereum and bitcoin are controlled by the emotions and moods of the investors rather than the economic factors. In the past, most experts have stated that economic factors have a huge impact on the currencies but this new study has thrown a spanner into the works.
The study was conducted by a senior assistant professor working in the finance department at Warwick Business School, Daniel Bianchi. Daniel found out that price patterns for 14 of the largest and most popular cryptos in the world today are a true reflection of the investors. Emotions experienced as well as hype around the cryptocurrencies motivate the investors to either purchase more coins or sell them to new investors.
The research has also revealed that there are very slim similarities between the price of bitcoin and gold in the market. It further went ahead to state that the high and unpredictable volatility in prices of the 14 cryptos make it difficult for one to quantify it as a reliable and secure saving investment for not only shot term but also medium and long term basis.
The trend in the market could be because of the fact that no cryptocurrencies are controlled or rather monitored by the various government agencies, but it is important to remember that there are regulation policies been crafted to regulate the industry.
When you carefully analyze the results of the report, it is clear that investing your hard-earned money into digital currencies is equivalent to purchasing equity shares of a high tech firm instead of a normal currency.
During the period when Daniel and his team were analyzing this market, the price of bitcoin swung from $6,500 to $10,000 in just six weeks. The financial expert also quoted the results of the study and went ahead to state that the cryptocurrency market is very similar to the dot-com bubble that was experienced across the globe between 1997 and 2001.
The excessive speculation and hype about internet firms resulted in the prices and valuations increase but later on the industry collapsed and millions of dollars were lost not to mention many companies were forced to close shop and thousands of employees became jobless.
One of the statement that will surely rub most of the cryptocurrency companies the wrong is his statement that most of the digital currencies are introduced into the market through crowd sales that are similar to the conventional IPOs and are referred to as Initial Coin Offering. The challenge is that these sales are not regulated and so it is not easy to tell if the figures shown on the respective company websites are accurate.