The risks and profitability of cryptocurrencies – Yukun Liu and Aleh Tsyvinski

The risks and profitability of cryptocurrencies - Yukun Liu and Aleh Tsyvinski

Two economics professors from Yale University recently published a paper supporting the importance of cryptocurrency investments.

Professors Yukun Liu and Aleh Tsyvinski published the analysis “Cryptocurrency risks and profitability”, which underlines the value of this asset class. The main argument of the teachers is that they have a distinct evolution from the traditional financial assets. This means that prices are not affected by the macroeconomic factors that influence the economy.

According to Yale economists, cryptocurrencies are an important part of a diversified portfolio.

“We have established that the risk-return ratio of cryptocurrencies (Bitcoin, Ripple and Ethereum) is different from that of equities, currencies and precious metals. Cryptocurrencies have no exposure to the most common macroeconomic factors affecting stock markets. “

they note.

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The risks and profitability of cryptocurrencies in the medium and long term

According to the two economists, Bitcoin should represent 6% of investment portfolios.

In addition, Liu and Tsyvinski believe that cryptocurrencies as a whole can do more for investor portfolios than protect them from volatility in traditional markets. They pointed out that over time, Bitcoin and other major cryptocurrencies have experienced substantial price increases. They expect this trend to continue in the medium and long term:

“Specifically, we have determined that there are strong momentum periods over time and that investors’ attention forecasts massive returns for cryptocurrencies … The performance of cryptocurrencies can be predicted by two factors specific to its markets – investor momentum and attention.”

Adoption of the crypto ecosystem – Retrospective of the year 2019

Therefore, in the opinion of Yale economists, cryptocurrency prices could grow significantly if they are able to keep pace and continue to grab investors’ attention.


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