Researchers analyze BTC profitability and predictability

A team of researchers studied the value of technical analysis in predicting bitcoin's future price movements. Simple trading techniques that rely on the moving averages (MAs) were found to be significant in predicting the future of bitcoin price.
A group of researchers have conducted a research study to identify the value of technical bitcoin price analysis in predicting future bitcoin price movements. They analyzed price movements via studying various Moving Averages (MAs). A team of five researchers, from different universities in the US and China, grouped up to analyze the most volatile trading asset in the world.

Bitcoin is described as an unpredictable asset by the majority of financial experts, and most blame its speculative nature for its price volatility. However,  bitcoin's return on investment (ROI) can exceed that of any other investment asset in the world.

As stated in the research paper, one dollar invested in bitcoin on October 27th, 2010, generated a staggering return of $193,000 by December 12th, 2017. In comparison, investing the very same amount in the S&P500 stock index, during the same period, generated only about $2.5. Observing the high difference in returns, one can see why investors are pouring their money in bitcoin and other cryptocurrencies.

The researchers explain that technical indicators can be used to predict the prices of cryptocurrencies, the same way they are used to predict the prices of stock. They provided one of the first equilibrium models applicable to non-fundamental assets such as bitcoin.

To collect bitcoin price data, necessary for testing their model, they relied on Coindesk.com due to the fact that it is often cited by the Wall Street Journal as a source for bitcoin-related information. Price data from July 18th, 2010 to December 12th, 2017 was collected by the researchers, and then used to test their model and analyze its correctness.

The research paper concludes that the price of Bitcoin is predictable by technical analysis and technical indicators, especially the 5 day and 100 day moving averages (MAs). A trading strategy, which relies on technical analysis of bitcoin price charts, is more effective and profitable than the buy-and-hold strategy adopted by most investors.

Bitcoin is attracting more and more mainstream attention these days. In times like this, it is important for it, to have a sense of predictability.

This would give bitcoin an image of orderliness. Investors definitely prefer assets with reasonable levels of price predictability to minimize risks of loss. The relatively high predictability levels of tradable assets on NASDAQ and S&P500 is why investors prefer to pour money there. They consider them safer markets where they can expect guaranteed returns.

Cryptocurrencies represent a relatively new market, and there is currently no to little empirical research done on them. The efforts of these researchers should be admired, and you can expect further research on cryptocurrency trading in the near future.