Cryptocurrencies as a financial asset: A systematic analysis

TLDR: A systematic review of the empirical literature based on the major topics that have been associated with the market for cryptocurrencies since their development as a financial asset in 2009 is presented in this article, where the authors provide a systematic analysis of the main topics that influence the perception of cryptocurrencies as a credible investment asset class and legitimate of value.

About: This article is published in International Review of Financial Analysis.The article was published on 2019-03-01 and is currently open access. It has received 623 citations till now. The article focuses on the topics: Financial asset & Asset (economics).

Frequently asked questions

Q1. What are the contributions in "Cryptocurrencies as a financial asset: a systematic analysis" ?

This paper provides a systematic review of the empirical literature based on the major topics that have been associated with the market for cryptocurrencies since their development as a financial asset in 2009. Despite astonishing price appreciation in recent years, cryptocurrencies have been subjected to accusations of pricing bubbles central to the trilemma that exists between regulatory oversight, the potential for illicit use through its anonymity within a young under-developed exchange system, and infrastructural breaches influenced by the growth of cybercriminality. 

Q2. What have the authors stated for future works in "Cryptocurrencies as a financial asset: a systematic analysis" ?

But such accusations are directed in the knowledge that the future of finance and broad technology may lie in the underlying blockchain on which cryptocurrencies are based. 

Q3. What is the main reason why the authors found a negative bubble in the two largest cryptocurrencies?

Drawing from statistical physics and mathematics, the authors find evidence for a negative bubble from 2014 onwards in the two largest cryptocurrencies, Bitcoin and Ripple. 

Q4. How can the authors guarantee the existence of Bitcoin in the long-run?

By making the block size a non-binding constraint and at the same time letting the fee be fixed as the outcome of a decentralised competitive market cannot guarantee the existence of Bitcoin in the long-run. 

Q5. How long does it take to verify the status of those who applied to invest in the ICO?

The company claims it needs ‘several weeks’ to verify the ‘accredited investors’ status of those who applied to invest in the ICO. 

Q6. What is the main reason why the authors found that Bitcoin is highly speculative?

Baek and Elbeck [2015] use the S&P500 to examine relative volatility with Bitcoin using de-trended ratios to find that Bitcoin is internally driven by buyers and sellers, therefore concluding that the Bitcoin market is highly speculative. 

Q7. What is the main reason why the cryptocurrencies are in a bubble?

In an interview with Business Insider on 27 February 2018, the chief investment officer of the Investment Strategy Group of Goldman Sachs stated that cryptocurrencies at large are in a bubble and ‘when it bursts, will impact only 1 percent of global GDP’6ACCEPTED MANUSCRIPTAC CEPT EDM ANUS CRIP 

Q8. What is the way to monitor the volatility of cryptocurrencies?

Tinterest when attempting to monitor potential bubbles in the market for cryptocurrencies, particularly issues such as power consumption and mining expense. 

Q9. What is the effect of the ban on anonymous trading?

In January 2018, the South Korean Financial Services Commission introduced measures to ban anonymous trading on domestic exchanges, while foreigners and minors would be completely banned from trading through cryptocurrency accounts. 

Q10. What are the key issues that are central to the existence of cryptocurrencies?

Within their own structure, cryptocurrencies are not domiciled in any single country’s borders, which inherently is one of the key problems when attempting to define regulatory alignment. 

Q11. What is the main issue surrounding the cryptocurrencies?

A further major issue surrounds that of anonymity, which must be addressed to undermine issues such as money-laundering and general misappropriation of funds, particularly when considering the ease of cross-border transfer of cryptocurrencies. 

Q12. What are the benefits of adding Bitcoin to a stock-bond portfolio?

Platanakis and Urquhart [2018] have examined the diversification benefits of adding Bitcoin to a stock-bond portfolio and find that the out-of-sample benefits are quite considerable with substantially higher Sharpe, Sortino and Omega ratios, which hold across all different asset allocation strategies and risk aversions. 

Q13. What are the key economic risks of cryptocurrencies?

The authors consider the relevant literature in due course but identify the potential for inherent pricing bubbles as one of the key economic risks central to the existence of cryptocurrencies at large. 

Q14. What is the main reason why the authors found that Bitcoin exhibits speculative bubbles?

Cheah and Fry [2015] found that Bitcoin exhibits speculative bubbles with further empirical evidence provided that the fundamental price of Bitcoin is zero. 

Q15. What is the way to guarantee that no matter how a malicious outsourcer behaves?

The author’s proposed construction can guarantee that no matter how a malicious outsourcer behaves, the honest workers will be paid if he/she completed the computing tasks. 

Q16. What are the main issues of the regulatory issue of cryptocurrencies?

Regulatory issues are not confined to money-laundering aspects and as to whether the costs of cryptocurrency barriers could hinder the potential benefits. 

Q17. Why is this paper motivated by the growing amount of academic literature?

this paper is motivated by the growing amount of academic literature analysing a variety of issues associated with the rapid growth of cryptocurrency markets.