Available for reading here
- General description of cryptocurrencies and the Ethereum blockchain
- Is Ether a currency or a commodity? ( Garch and E-garch analysis)
- Hedging capabilities of Ether (Hedging against Gold, Dow, SPSE and Bitcoin)
- Drivers of Ether's price (Analysis of Social media correlation with Ether's price)
- Traditional Event analysis on the first ETH hard-fork
Satoshi Nakamoto released in 2009 the first cryptocurrency : ”BitCoin”1. Since, more than 700 digital currencies were created, all different one from another. One of them, Ether (relying on the Ethereum network), went live in August 2015, and has become, in less than a year, the second cryptocurrency in market capitalization. While numerous research studies have been made on the financial behavior of Bitcoin, none has today looked into the one of Ether. It is the purpose of this report.
We first analyze Ether (Ethereum’s crypto-asset, ETH) and define it as a commodity. We then study its hedging capabilities against the FTSE index and the Dollar, through a GARCH analysis. Our results prove that Ether has a value of hedging against the Dollar, but can not hedge against the market risk, hence fitting in portfolios of risk-seeker investors. As a continuation, we analyze Ether’s correlation with Bitcoin, in order to determine the impact of having both assets in a portfolio. Our results show that they are positively correlated, hence making it risky for an investor to include both in the same portfolio. Last but not least, we determine the price drivers of Ether, by analyzing the correlation between the number of Decentralized Applications in development with the price of Ether, and the relation between social media and the value of Ether.
Our results show that there is a positive correlation between the number of Dapps created and Ether’s value. We therefore advise investors to follow closely the development of these softwares, as it may drive the price of Ether. Regarding the correlation between social media and Ether, we analyze the number of views on Wikipedia, the number of Facebook ”Talking about”, the Twitter feeds and the number of Reddit post and comments per day, and find that Wikipedia, Facebook, and Reddit posts are the largest indicators of Ether’s potential evolution.
We recommend further research to be done on the subject once the market is a bit more mature, as recent events of Ethereum have skewed our data. Moreover, we think that a sentiment-analysis on social media may be a good advancement on the research for Ethereum.
This thesis has been written end of 2016, as our Master's thesis in Management of Information Systems and Finance.
The paper is available in both LaTex and in PDF and data has been pulled from Cryptocompare.