A team of academic researchers from the International Hellenic University in Greece and the Democritus University of Thrace recently published An article supporting the “efficient market hypothesis” (EMH) for Bitcoin trading (Bitcoin).
EMH is a controversial theory that researchers say has helped develop models that can outperform the Hodl strategy by almost 300% in simulated cryptocurrency portfolios.
According to research articles:
“We are able to produce models whose forecasts give investors a chance to make higher profits than they could if they followed the well-known buy and hold strategy.”
At the heart of the EMH is the idea that the share price of an asset reflects the fair market value of that asset and all applicable market information. If this were true, it would be impossible to outperform the market by trying to time it or by intuitively predicting that stocks will win.
Typically, EMH proponents argue that investors should invest in low-cost passive portfolios rather than trying to beat the market with well-timed, undervalued stock purchases.
Meanwhile, opponents of the EMH tend to dismiss this line of thinking, arguing that some investors, like Warren Buffett, have built their entire careers on beating the market.
According to the Greek research team in the cited article, whose research was limited to observations of the Bitcoin market, the EMH can be applied to cryptocurrency trading as a replacement for the standard “buy and hold” approach, or hodling, which aims to avoid market fluctuations. .
To test this, the researchers developed four different AI models trained with different data sets. At the end of training and testing, they selected models optimized for “beating the market” and hodling strategies.
According to the team, the best-fitting model outperformed underlying returns by up to 297%. This result supports the idea that EMH could be a useful tool for Bitcoin and cryptocurrency investors. However, it is worth remembering that the authors conducted their research using historical data and portfolio management simulations.
Although the results of this study are empirical, they may change the minds of those who have a strong view against the effectiveness of EMH.
Translation by Walter Rizzo