A Yale study has revealed the best time to buy into Bitcoin and potentially given us a blueprint to make money. But almost at the same time, an expert from Harvard has predicted that Bitcoin could enter a terminal slide from which it never truly recovers.
The advice, then, is contrary, and your own strategy will depend on your personal beliefs about Bitcoin’s future. The general consensus, though, is that Bitcoin will bounce back in a big way. The only problem is that nobody knows when.
A Simple Bitcoin Investment Strategy
Yale’s strategy applies across the board and isn’t Bitcoin specific. The University’s experts believe that if a cryptocurrency gained 20% in value in the previous week, it’s a relatively safe sign that you should dip in to the market. It recommends holding the stock for at least a week at that point.
This ‘Momentum Effect’ is a remarkably clear indicator and while investors that follow this advice might not get all the profits, it could well turn out to be a safe investing system. If the market shows an extended downside over the course of a week, too, the economists reckon that’s the time to sell and do not stick around to wait for an upturn.
“Momentum is actually something simple,” Tsyvinski told CNBC. “If things go up, they continue to go up on average, and if things go down, they continue to go down.”
It’s a remarkably simple strategy, which is bound to turn against you at some point. If you play this strictly by the numbers, though, Yale thinks you’ll come out on top more often than not.
Yale’s Department of Economics carried out what it calls: “The first ever comprehensive economic analysis of cryptocurrency and blockchain technology.”
What is the Risk-Return Trade-Off?
Aleh Tsyvinski and Yukun Liu set about creating a simple ‘risk-return trade-off’ and went all the way back to 2011 to crunch the numbers on Bitcoin. They charted Ripple (XRP) and Ethereum’s progress since the beginning, in 2012 and 2015 respectively.
The pair contend that cryptocurrencies are completely insulated from the actual stock market, currency fluctuations and other macroeconomic factors that have a profound effect on the Stock Exchange.
In Boston, It’s Raining Pessimism
Harvard’s resident expert believes something else entirely might be just round the corner. Kenneth Rogoff, author of The Curse of Cash and an Economics Professor at Harvard, predicts a bleak future for Bitcoin.
“I think bitcoin will be worth a tiny fraction of what it is now in 10 years,” he said. “I would see $100 as being a lot more likely than $100,000 10 years from now. Basically, if you take away the possibility of money laundering and tax evasion, its actual uses as a transaction vehicle are very small.”
Rogoff is a Cynical Minority
That seems to fly in the face of a large panel of expert opinions. Bitcoin’s future is up in the air, though, and there’s no reason another coin can’t simply sweep it out the way on its way to the top.
Market regulation could be another fatal blow to Bitcoin, and Rogoff doesn’t see any other way to take cryptocurrency mainstream. Regulation could take the form of a full global crackdown, including blockchain-based compliance. Cryptocurrency is so volatile right now that even final and complete rejection of Bitcoin ETFs could send the coin into a slide.
Rogoff, like every other pundit, is simply making educated guesses at this stage. There is no way to truly predict the market, as the industry is just too young to have that kind of long-term forecast. Regulations, the impact of new coins and even market forces can send Bitcoin and other cryptocurrencies skywards or to the floor.
Looking deep into the future at this stage smacks of scaremongering and Yale’s actionable advice could prove more interesting to many investors than a retreat from the market based on Harvard’s much looser predictions.
The author is not currently invested in any digital currency.