Despite all its recent progress, cryptocurrencies still do not inspire trust in a lot of people. Many view them as unsafe money, with its very nature being doubtful. However, a recent report by the Polish Academy of Sciences’ Institute of Nuclear Physics shows that situation regarding cryptocurrencies may not be as bad as it seems. In fact, the report claims that Bitcoin might even be a better currency than it looks like.
Bitcoin vs traditional money
Bitcoin, as many are already aware of, is the first cryptocurrency. It was created a decade ago and was officially launched in 2009. But, even though it has been around for around 9 years at this point, it is still largely mistrusted by a lot of investors, especially when it comes to large institutions.
However, thanks to the Cracow-based Institute of Nuclear Physics’ recent report, this common opinion might actually be wrong. The Institute has conducted a detailed statistical analysis of the BTC market and has published the results in a scientific journal called Chaos: An Interdisciplinary Journal of Nonlinear Science.
Surprisingly enough, the report portraits Bitcoin in a very positive light.
The report started by commenting on the credibility of traditional money. In the past, money that people have been using was backed by specific material commodities, such as gold. These commodities gave the money its value and served as a guarantee that the money actually has worth. This is not the case anymore, however, we still believe in the value of money due to the fact that it once had it.
Basically, this puts the traditional money in the same situation with cryptos. The difference is that cryptocurrencies never had a real-world asset to back them up. Instead, their value comes from investors’ belief in them. The same is true for traditional money these days, and both cryptos and fiat currency value are determined by what is happening to them, or rather — their markets.
What did the report find?
Throughout its short history, Bitcoin’s price has shown quite high levels of volatility. However, despite this, the price continued growing as more people learned about it and assigned it additional value. The Institute’s analysis studied these price changes in the period between 2012 and 2018. Initially, the received graphs did not show any promising results, with no real pattern being obvious.
Upon a closer inspection, however, the crookedness of the graphs was established to be a result of the first two years during which BTC’s behavior was analyzed. In short, the results were seemingly inconclusive due to attempts of the young market to shape itself. Soon enough, the rates of return — which the researchers decided to study first — fluctuated in accordance with the inversive cubic law.
Basically, this law means that the distribution is described by the inversion of the third power of the quantity that was examined.
After reaching satisfying results regarding the rates of return, researchers decided to move on to the problem of their volatility. After studying mature global markets, it soon becomes clear that the signs of returns are not exactly correlated. This is also exactly what was observed within the Bitcoin market as well.
The only real difference is that time correlations within traditional markets may be a bit more subtle. As a result, they often come in different forms of volatility clustering. However, volatility clustering is also associated with yet another feature, which is the system’s reluctance when it comes to changing trend.
This reluctance is best described with a certain parameter that is called the Hurst exponent. Basically, the Hurst exponent has values that range from 0 to 1. If a value is at 0.5, this means that the market has the same probability of going up or down. If the value is below 0.5, we can expect situations that will bring a sudden rise in value, but the probability of a later decrease gets increased as well. The same goes in the other way. However, if the value is above 0.5 then the changes are seen as persistent in nature, and every increase brings the possibility of yet another increase. Also, each drop means that another drop is more likely to come.
After studying the Bitcoin market, researchers deduced that the Hurst exponent approaches exactly 0.5. This is one of the biggest and most important characteristics of highly-reputable markets.
Another important feature that announces the market maturity is the so-called multifractal nature of the market’s characteristics. Simply put, multifractals are fractals of fractals. Basically, they are structures in which we can observe self-similarity, but only if different fractal fragments are brought to different speeds. Analysis of these multifractals revealed that certain dependencies exist on different scales.
In Bitcoin’s case, researchers found multifractality in rates of returns’ functions of fluctuations. This grew to be even more obvious during the last six months of the observation period (November 2017 – April 2018). This means that the results gained by observing Bitcoin are pretty much the same ones that can be gained from the stock, bond, oil, or even dollar markets.
Furthermore, the Institute’s Professor Stanislaw Drozdz also deduced that Bitcoin market’s most important statistical parameters indicate that BTC meets all the criteria that it needs to meet in order to be considered a mature financial market. Because of this, the professor believes that the Forex market, the largest market in the world, can soon expect a very real competition.
This also leads to some intriguing conclusions and observations. It is known that foreign exchange markets cannot mature without the help of governments or central banks. However, Bitcoin was capable of maturing entirely on its own, thanks to nothing else but its own characteristics. With that in mind, Bitcoin actually seems to be far more capable than the USD, or any other fiat currency, for that matter.
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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Global Coin Report and/or its affiliates, employees, writers, and subcontractors are cryptocurrency investors and from time to time may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency and read our full disclaimer.
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