The Research
Academics from the University of Saskatchewan recently published (Aug 20, 2024) a study that examines the determinants of cryptocurrency returns, focusing on the relationships between cryptocurrency returns and various macroeconomic and financial factors, including exchange rates, economic policy uncertainty, and commodity prices. The research used indices of 4 cryptocurrencies, 11 fiat currencies, 2 brands of oil, and 8 stock markets to structure the study. These findings are especially interesting as much of it builds on research done previously in 2015 and 2016 time period, which could suggest the cryptocurrency markets are being driven by new explanatory factors.
Author
Junayed, Farhan and Mishra, Dev R. and Tannous, George, Determinants of Cryptocurrency Returns.
Available at SSRN: https://ssrn.com/abstract=4930965
Results
We'll first cover the positive relationships found in the study, then the negative relationships and variables that did not exhibit any explanatory (predictive) power. Our comments will follow the bold finding.
Positive relation between crypto returns and liquidity as measured by number of transactions.. Higher transaction counts = higher prices. Oh and by the way, we make this important variable available via our API solution
Positive relation between cryptocurrency returns and an index of foreign currencies. This effectively means that when the USD weakens (conversely foreign currencies appreciate) that cryptocurrency prices also appreciate. If USD strengthens (index of fx currencies falls), crypto also loses value.
Positive relation between return on cryptocurrency and price of oil. This is also a big finding as it can be interpreted as when oil prices go up, crypto prices go up.
Negative relation found between cryptocurrency returns and the US Economic Policy Uncertainty index. Basically, as uncertainty as measured by index increases, crypto prices tend to fall.
Negative relation found between the cryptocurrency velocity (aggregate size of transfers divided by the number of active coins) and cryptocurrency returns. This metric speaks more to health of the network as it measures indirectly how active accounts are at using the cryptocurrency to spend or send value. We also have metrics that measure network health on our API page
No significant relationship found between social media attention (posts on Reddit) and crypto returns. This finding is different / opposite than what others have found - is it possible that social media influence on the markets is waning as ETFs and big funds get involved?
No significant relationship found between the stock market and cryptocurrency returns. This finding is also different / opposite than what others found previously, an its more likely to fluctuate in correlation or significance across time (likely could change again).
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