While the coin has conceptual potential as a store of value, and this potential is somewhat supported by the correlative evidence, the Dogecoin correlations are clear evidence that most of what happens to Bitcoin value is still being driven by idiosyncratic demand/risk factors unrelated to my thesis, but rather related to the success of cryptocurrency as a whole. Does crypto have value other than as a store of value? Although all three cryptocurrencies have a negative loading on Japanese QMJ, Dogecoin and Ethereum get substantially more negative coefficients. The results of this analysis are rather interesting: Bitcoin exhibits a small positive loading on US QMJ, which is not shared by the other two cryptos. I therefore think that Bitcoin is the only worthwhile cryptocurrency investment, and expect that the returns to holding non-Bitcoin cryptos should be zero or negative on average. One way that academics measure these effects is to construct “factor returns” that are the weighted average of the returns of other assets. Specifically, to measure the correlation between assets A and B, I regress the (ranked) timeseries of A returns on the returns of the B, plus 1 day lagged/leading versions of B returns. In particular, there is no particular correlation with junky assets or BAB/QMJ.
This is good news for those worried that Bitcoin is valueless because it is a lottery, but by the same token, it is bad news for those who think Bitcoin is valuable because it is “digital gold”: there is no correlation with high-quality assets such as the precious metal or investment grade bonds. The correlation between Bitcoin and DOGE is particularly interesting. So, is Bitcoin a junky lottery ticket with poor prospects for the future? One reason to believe that Bitcoin is a poor investment is because it is a rather volatile asset. You are not rewarded in the stock market for holding volatile equities which are heavily exposed to systematic risk. For example, you might construct the factor returns to “quality” by working what you would earn if you took a long position in the stock of companies with low year-to-year variation in earnings, low debt, and strong earnings growth, while shorting debt-ridden shrinking companies with no earnings consistency. Betting against beta: measures the returns to buying stocks which are poorly correlated to the stock market as a whole, while short-selling stocks which strongly correlate with the market. 100% market share. It also seems very likely that if any cryptoasset reaches this point, it will be the coin with the best “brand name” i.e. Bitcoin.
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World Currency Converter is a free and easy to use currency converter with real time exchange rates. Personally, I have a hard time seeing a strong case here. Overall it seems that there is hope here for those who are bullish on Bitcoin because they believe it is a new safe-haven asset. If you are feeling lucky this King’s Day then there are some great sports bonuses available at Nitrobetting. If this were true then my correlation estimates above would be artificially low: to correct for this, I looked at an alternative correlation metric that is robust to lagging. The square-root of the coefficient of determination for this linear model is our lag-robust correlation metric. For ease of interpretation, I choose the sign of the square root to match that of the Pearson correlation betweeen A and B returns. We also see Ethereum and Bitcoin pick up a positive correlation with the gold price, and this correlation is not shared by Dogecoin.