Abstract
This paper examines persistence in the cryptocurrency market. Two different long-memory methods (R/S analysis and fractional integration) are used to analyse it in the case of the four main cryptocurrencies (BitCoin, LiteCoin, Ripple, Dash) over the sample period 2013-2017. The findings indicate that this market exhibits persistence (there is a positive correlation between its past and future values), and that its degree changes over time. Such predictability represents evidence of market inefficiency: trend trading strategies can be used to generate abnormal profits in the cryptocurrency market.
Highlights
The exponential growth of BitCoin and other cryptocurrencies is a phenomenon that has attracted considerable attention in recent years
One of the key issues yet to be analysed is whether the dynamic behaviour of cryptocurrencies is predictable, which would be inconsistent with the Efficient Market Hypothesis (EMH), according to which prices should follow a random walk
We focus on the four cryptocurrencies with the highest market capitalisation and longest span of data: BitCoin, LiteCoin, Ripple and Dash
Summary
The exponential growth of BitCoin and other cryptocurrencies is a phenomenon that has attracted considerable attention in recent years. Several studies have provided evidence of persistence in asset price dynamics (see Greene and Fielitz, 1977; Caporale et al, 2016), and found that this changes over time (see Lo, 1991), but virtually none has focused on the cryptocurrency market. The present study carries out a more comprehensive analysis by considering four main cryptocurrencies (the most liquid ones: BitCoin, LiteCoin, Ripple, Dash) and applying two different long-memory methods (R/S analysis and fractional integration) over the period 2013–2017 to investigate their stochastic properties. It examines the evolution of persistence over time (by looking at changes in the Hurst exponent). 28 Apr 2013 07 Aug 2015 04 Aug 2013 23 Jul 2017 28 Apr 2013 14 Feb 2014 01 Apr 2015 20 Jan 2017 09 Sept 2016 21 May 2014
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