What are the challenges in analysing cryptocurrency markets in a finance dissertation?
Suetin, in a nutshell, studying cryptocurrency markets in finance dissertations involves problems of extreme volatility, unreliable data, legal uncertainty, manipulation in the market, technological complications, speculation sentiments, influences from DeFi, and behavioural aspects. For these challenges, new methodologies are developed, tending to join classical finance techniques with cutting-edge technologies and interdisciplinary knowledge. These are indeed challenges, yet cryptocurrency markets provide exciting and dynamic areas of study, full of opportunities for researchers who fight their way through its thorns.
What are the challenges in analysing cryptocurrency markets in a finance dissertation?
In a finance dissertation, studying cryptocurrency markets can be difficult because of issues like price swings, limited data, and unclear rules. These challenges are linked to how cryptocurrencies work and the complex way the markets are set up, with the prices of these digital assets changing quickly and unpredictably. The article explains each of the challenges one is likely to face when researching in such areas concerning theoretical and practical aspects of the analysis of cryptocurrency markets.
ThesehugeswingsinthepricesofBitcoinandEthereummake it challenging to create pricing models or predictions. Thehuge volatility,as a result,makesthemarket not only very unpredictable but highlyvolatilecomparedtootherconventional financial assets. A researcher seeking finance dissertation help in the UKwill struggle to create stable models due to the volatility and unpredictability of cryptocurrency markets.
The analysesofcryptocurrencymarketsaredisparateinthelevelsatwhich data becomesavailable.Whereasinthe traditional markets, thereare reliableandconsistent data providers such as Bloomberg, cryptocurrency exchanges differ in prices, trading volumes and depths including transaction histories. Many of the exchanges involved are also very new and plagued with issues of hacking, fraud, and problems related to liquidity. Themoment you pay for a dissertation, the reliability of the data is one thing you want to make sure any inaccuracy in data may give rise to a misleading conclusion, thus denying the validity of your research.
The regulatory landscape is continuouslyshiftinganddifferingamongcountries,goingfromopenandembracingcryptotostrictcontrolling or bansaltogether.Out of the keyproblemsthathavesofartroubledmost researchers, such uncertainty oftheregulationswouldmostdefinitelytouchup on areas to do with prices, especially adoption, liquidity, and functionality. The legal landscape is fragmented, with the EU working toward harmonization and the U.S. taking a patchwork approach. Regulatory bodies like the SEC and CFTC have not settledthestatusofdigital currencies, adding to the difficulty of researching them.
Thirdly, the markets of cryptocurrencies are more easilymanipulated compared to other traditional markets. Manipulations like "pump and dump," where a few large traders inflate the price of an asset for profit, seriously distort the price signals andhencerenderdrawingvalidconclusionsdifficultforthe researcher. Being decentralized addstothecomplicationsof identifying sources of manipulation, andthis demands certain adjustments in research models and methods.
The cryptocurrencies are based on blockchain technology: a decentralized ledger system with combined technical, economic, and social aspects. Some of the key concepts, including proof of work, proof of stake, and smart contracts, require deep technology understanding to go a long way in understanding cryptocurrency markets. Moreover, the very decentralized nature of such markets-with blockchain itselfbased on distributed networks that traditional analysis cannot be applied. Researchers havetotake into consideration factors suchas consensus mechanisms, thespeed of transactions, scalability, and future technological advancements.Thisisbecause any technology change, for example, Ethereum's switch to proof of stake can render existing models obsolete.
A unique feature of cryptocurrency markets is that prices are mainly influenced by people's feelings and guesses about the market. Unlike other investments, which are based on things like company earnings or future growth, cryptocurrencies are often seen as risky investments. Their prices go up or down because of excitement, hype, and media attention.
In the scenario above, the large contributors to changes in the market are social media platforms, forums like Reddit and Twitter, and crypto influencers. Thatagain is adifferent matter altogether, since quantifying and measuring sentiment is a headache in itself. Techniques involved in sentiment analysis, whichisessentially dealing with large volumes of text data to gauge public opinion, are themselves evolving and error-prone.
Capturing sentiment and its impact on the prices ofcryptocurrencieshasindeed been truly interdisciplinary, especiallywhilewritingadissertation, bringingfinancial analysis, computational linguistics, and machine learning allintoone.Inmanycases,thiscreatesdifficultiesforresearchfinancedue to thespecialized skills required.
The DeFi, or decentralized finance, offers financial services like borrowing without needing traditional banks or middlemen. It is built on blockchain technology and has become a key part of digital currencies. Its growth has made studying cryptocurrency markets harder by adding new factors that influence how the market works.
For example, advances in decentralized exchange models, including DEXs, liquidity pools, and yield farming protocols, have implicationsfor price discovery processes and market behaviours. Most of these decentralized structures are not at all transparent and less regulated, adding to the complication of any analysis. In studying cryptocurrency markets, one is bound to know how DeFi platforms work and how they interface with traditional financial markets.
Finally, the cryptocurrency markets also study behavioural biases among market participants. Investors in cryptocurrency markets are usually irrational, havinga herd mentality, FOMO, and overconfidence. In return, they drive prices to unsustainable levels and lead to market bubbles and crashes.
Accountability for behavioural factors plays an essentialrolein financial analysis; however, it is quitetricky to quantify. The patterns of irrational behaviour, how those behaviours take place, and how they affect the market outcome are challenges a researcher must answer while attempting to incorporate behavioural finance into their analysis of cryptocurrency markets.
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