Stepping Stones for Cryptocurrency RISK- RETURN TRADE OFF BY NIKHIL SINGH GANGWAR, IIFT One of the most sweltering innovations in the world of finance has been the creation and evolvement of cryptocurrencies. These digital innovations have been the epicenter of extensive news coverage, especially the Bitcoin: frontrunner, determined to provide an alternative to investors that involves tremendously high risk and return. The cryptocurrency phenomenon unconventional sources of risk
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Measures of crypto returns have been a high multiple of conventional currency, equity and commodity investments and the pattern has been very robust relative to the time frame. The financial press addresses new vocabulary such as block chain, hash, proof-of-nodes and the role of distributed cryptographic proof replacing the need for trust (the distributed ledger and transaction verification), privacy (anonymity), and the potential haven for transfers of illegally obtained funds. The potential returns are comparatively much bigger than those of more conventional investments. Traditional Approach Return analysis with respect to other asset classes
"Crypto returns can be predicted by factors which are specific to cryptocurrency markets."
It has been proven, via standard tools of empirical asset pricing by mathematically constructing cryptocurrency momentum, proxies for average and negative investor attention, a proxy for price-to-dividend ratio, realized volatility, and proxies for the supply conditions. Time-series crypto momentum, for example, a one-standard-deviation increase in the current day’s Bitcoin return predicts a 0.33 percent increase in the daily return over the next day. Proxies for investor attention, show that high investor attention predicts high future returns over 1–2-week horizons for Bitcoin, a 1-week horizon for Ripple, and 1-, 3-, and 6-week horizons for Ethereum.
Cryptocurrencies return predictors: Exposure of cryptocurrency returns to currencies as a medium of exchange and precious metal commodities as a store of value and to macroeconomic factors has been not statistically significant
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