The Evolution of the Cryptocurrency Market Is Trending toward Efficiency?
The Evolution of the Cryptocurrency Market Is Trending toward Efficiency?

Author(s): Rui Dias, Nicole Horta, Catarina Revez, Paula Heliodoro, Paulo Alexandre
Subject(s): Financial Markets
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: Cryptocurrency markets; Efficient market hypothesis; Market efficiency
Summary/Abstract: When compared to traditional financial markets, cryptocurrencies were seen as assets with minimal correlations. However, because this continually expanding financial market is marked by substantial volatility and strong price movements over a short period, developing an accurate and reliable forecasting model is deemed crucial for portfolio management and optimization. Given the relevance of cryptocurrencies in the global economy, it is important to determine if Bitcoin (BTC) becomes more predictable as investors adopt more aggressive trading positions. We examine BTC over the period from May 15th, 2021, to April 14th, 2022 (8676-time data), using intraday (hourly) time scales. The results reveal that the random walk hypothesis is rejected at lags of 3 to 16 days, while we see that the BTC market tends toward efficiency (see the evolution between lags of 16 and 2). These findings reveal that, given the uncertainty in the global economy in 2022, namely the Russian invasion of Ukraine, the BTC market shows values of the variance ratios close to unity, implying that it is, apparently, not predictable and that the residuals are not autocorrelated in time. In addition, the results of the Detrended Fluctuation Analysis (DFA) exponent show that this market does not exhibit characteristics of (in) efficiency in its weak form. In other words, this market does not have persistent and mean-reverting properties, thus validating the results of Wright’s Rankings and Signs variance test.

• Details
• Contents