Bitcoin has climbed this week, boosted by remarks made by the chairman of the Federal Reserve, Jerome Powell, on digital currencies and by renewed hopes of a fresh stimulus deal.
The bitcoin price has climbed above $12,000 per bitcoin for first time since mid-August and is nudging its year-to-date highs. However, bitcoin’s rally has failed to boost other major cryptocurrencies, including ethereum, Ripple’s XRP, litecoin, chainlink.
Now, researchers have identified what’s really driving bitcoin and cryptocurrency prices—finding conclusive evidence that there are fundamentals at play, and they can be quantified.
“Despite what Donald Trump may think, the price of a cryptocurrency does not come out of ‘thin air,'” analysts at bitcoin and cryptocurrency market data The Tie wrote in their report, pointing to U.S. president Trump’s 2019 tweet deriding bitcoin and cryptocurrencies. “Rather, there are real, tangible driving forces that determine the price of a digital currency.”
“What we’re trying to show is that the patterns in crypto aren’t that different from equity markets, though the opportunity is much bigger,” said Josh Frank, The Tie’s founder and chief executive, speaking over the phone.
The bitcoin price has been trading broadly in line with equity markets in recent months—with massive government stimulus measures boosting assets across the board.
“Bitcoin and ethereum’s reaction to adverse news isn’t as pronounced as it was,” Frank said, pointing to Wall Street’s increased participation in the bitcoin market and claiming bitcoin critics, such as J.P. Morgan chief executive Jamie Dimon “aren’t able to move bitcoin prices like they used to.”
However, the price of smaller cryptocurrencies can still be significantly moved by events The Tie has designated “significant developments.”
“Wall Street isn’t trading much EOS and tron and anyone in the asset class can take advantage of the kind of data we collect,” Frank added.
Some bitcoin and cryptocurrency market watchers expect smaller cryptocurrencies to eventually move in a similar way to the more established bitcoin and ethereum.
“Bitcoin and ethereum are the gateway into crypto,” said Guy Hirsch, U.S. managing director of brokerage eToro, which has a partnership with The Tie, speaking over the phone.
“Wall Street interest in the altcoin market is growing, boosted by capital allocation to bitcoin and ethereum. There are billions of dollars being poured into decentralized finance (DeFi) that will create stable decentralized products that create a whole new market.”
Researchers found that announcements of fresh funding for a project, as well as mergers and acquisitions are most likely to have positive effects that often extend beyond a week—showing a 90% chance of a positive return after a week, averaging 8.23% in returns.
Elsewhere, while getting listed on a new exchange increases demand on a cryptocurrency, such events don’t result in a sustained price increase. Similarly, token burns—the permanent removal of existing cryptocurrency coins from circulation by the cryptocurrency’s creator—yield the most consistent returns over a 24-hour period with a 100% probability of an average 2.13% price increase within the day, but those gains are only temporary.
Additionally, analysts report that regulatory announcements have a larger effect when they come from news outlets, while airdrops, a type of crypto distribution where free coins are sent to multiple digital wallets, are better supported by Twitter activity.
“Conversely, and unsurprisingly, 51% attacks [where a single entity or organization is able to control the majority of a cryptocurrencies computing power, potentially causing a network disruption] show the lowest probabilities of yielding positive returns,” the report read, with such attacks causing a token to lose value 80% of the time over the following seven days.