In an article on recent scientific research on the cryptocurrency market, Ross Pomeroy offers some researchers a perspective on why Ethereum tends to be more stable than Bitcoin:
Ethereum could be a better investment than Bitcoin in the long run. Cryptocurrency Ethereum ranks second after Bitcoin in terms of popularity. However, two studies have shown that it tends to be more stable and a better safe haven investment during tough economic times. A research team from Singapore wrote in PLoS ONE magazine: “Although both Bitcoin and Ethereum are digital tokens that serve as a decentralized currency based on blockchain technology, there are crucial differences between them. While Bitcoin has positioned itself as an alternative monetary system in the financial market, Ethereum has mainly focused on the monetization of smart contracts. As the first cryptocurrency, Bitcoin was widely used for speculative purposes. These characteristics are reflected in the composition of the users. It is observed that the behavior of Ethereum users is more stable as these users are more optimistic about the market. In contrast, Bitcoin users’ behavior tends to fluctuate according to market developments, with optimism waning when the market falls. “
Ross Pomeroy, “Five Things Science Told Us About Cryptocurrency” at RealClearScience (February 22, 2021) The paper is openly accessible.
Other scientific findings have been that cryptocurrency uses a lot of energy and that its traders are more unpredictable than traditional investors. Still, cryptos are part of a balanced portfolio and crypto investors show herd behavior.
Now the “Herd Behavior” part doesn’t seem like a big surprise or new idea on the market. It is interesting, however, that the cryptos are seen as part of a balanced portfolio. The paper cited here reads: “This study examines the effects of diversification by adding five cryptocurrencies from November 2015 to November 2019 on four traditional asset portfolios. The results show that diversification in most cases increased the return, decreased the volatility of the portfolio in all portfolios and, compared to traditional portfolios, provided higher returns for the same risk. “(Technol Forecast Soc Change, December 2020, Open Access).
Some analysts are less enthusiastic. Economics professor Gary Smith wrote here on Mind Matters News: “Investors who buy bonds get interest. Investors who buy stocks receive dividends. Investors who buy apartment buildings receive a paid rent. People who buy cryptocurrencies get nothing more than the hope that they can sell their cryptocurrency to a bigger fool at a higher price than they paid stupidly. “(December 16, 2019)
Is crypto really just a bolt of lightning? It’s been on a wild ride lately.
February 16, 2021: Bitcoin price 2021: 8 large companies increase BTC to USD 50,000
February 23, 2021: Ethereum (ETH / USD) is destroyed as the cryptocurrency market is overrun by sellers
Maybe not a bubble. But really ready for prime time?
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How Bitcoin Works: The Social Value of Trust It is very interesting to study a technology that is not based on trust. In the end, however, the most interesting thing is not how we should build a network, but the social value of trust in society. (Jonathan Bartlett)
Bitcoin is a classic bubble investment. Correlations are easy to find in large amounts of data. Useful relationships are harder to pin down. (Gary Smith)