Buy Bitcoin on Strength, Says Yale Study

Friday saw bitcoin once again threaten major support at $6,000. According to new research from Yale University, those wanting to get their hands on bitcoin could do a lot worse than waiting for the market to reapproach $7,200.

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The cryptocurrency market exploded last year but has come crashing down in 2018. After a minor bounce, bitcoin ended last week at levels near $6,150, nearly 70 percent lower than its December peak, and it hasn’t been priced in five digits since early March.

Busy in recent weeks studying seven years’ worth of bitcoin price data have been Yale University researchers Yukun Liu and Aleh Tsyvinski; the two now believe they have found a valuable pattern that can be used to predict future market direction.

In Risks and Returns of Cryptocurrency, available from The National Bureau of Economic Research, the researchers write that there is a “strong time-series momentum effect and that proxies for investor attention strongly forecast cryptocurrency returns.”

The researchers conclude that a simple indicator, such as buying when bitcoin has risen 20 percent in the previous week, “generates outstanding returns” in the short term. Given Friday’s low of $6,010, we can therefore lay the marker for potential long entries in today’s market at $7,212, or more easily at $7,200. Of course, at this point it would be amiss if we did not cite the oft-used investment disclaimer, “Past performance is no guarantee of future results.”

As skeptical as we might be of technical trading rules of such simplicity, it certainly doesn’t seem unreasonable to suggest that long positions beyond $7,000 offer opportune timing for short term investments. There are, after all, only so many knocks on the door that one can make before he or she realizes that they aren’t welcome. Bitcoin has knocked on the door of $6,000 several times since February, and if indeed it isn’t welcomed at new lows very soon then we might conclude that the only way from here is up, and in that case, a move through $7,000 might be considered our confirmation that we’re correct.

Of course, the advantage of buying on strength rather than on dips is that there’ll be nothing to talk about should bitcoin take a dive from here; no trades will ever be triggered.

Traders might look on bitcoin’s failure to rally last week despite emerging market chaos as an ominous sign; however, those same traders can seek solace in the fact that gold (one of the world’s most treasured safe havens) also lost value.

We should note that longer-term views on bitcoin have changed for the worse in recent months. Among those changing tune is Goldman Sachs. In this report made public in early August, the prestigious bank said it expects “further declines in the future given our view that these cryptocurrencies do not fulfill any of the three traditional roles of a currency.” Cryptocurrencies are “neither a medium of exchange, nor a unit of measurement, nor a store of value.” UBS said something similar on August 2nd.


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Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.

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