As of late December, a group of theorists and traders have been attempting to blend quantitative methods with cryptocurrency. Quants use complex computer models to choose stocks in hopes of reducing human error in the process of selecting what to invest in. So far, quants have examined Bitcoin's price movements in attempt to find correlations between Bitcoin and other assets, but this search has thus far yielded few predictable patterns.
Currently, experts are honing in on the investment factors of momentum and value, in hopes of better understanding and predicting Bitcoin prices. The concept of factors has already revolutionized the world of equities by allowing experts to interpret the behaviors of groups of stocks by traits like cheapness or low volatility, as opposed to doing research about the company and stock trends alone. Experts believe that the mental mistakes investors make are consistent across the board, so that the exact same trading opportunities appear across all markets. The immense volatility of cryptocurrencies make them an appealing laboratory for researchers interested in learning about investors' behavioral biases.
For some people, like quantitative fund manager Doug Greenig, exotic assets present a much more interesting money-making challenge due to their volatility - especially as compared to the developed markets, which tend to be more mellow, with less visible trends. Greenig claims that the erratic nature of cryptocurrencies means that they should have "low correlations to the traditional asset classes and strong historical trending behavior." Momentum seems to be the key factor here, given how sentiment-driven Bitcoin is. Investors could take advantage of momentum by adding bullish bets as the cryptocurrency picks up steam.
Among the main digital currencies, value, carry and momentum all play key roles. The task then becomes replicating those traits in cryptocurrencies. This is a much harder task for cryptocurrencies than for stocks, because with the latter, value can be simply measured through the company's price-earnings ratio. In cryptocurrencies, value is postulated as the token's market value against the dollar volume of blockchain transactions. Momentum is defined in terms of an imposed, four-week horizon, given the comparative dearth of historical data. In contrast, twelve months is normal for equities.
