Recently, an academic research team from the International Hellenic University of Greece and Democritus University of Thrace publish Paper supporting the “Efficient Market Hypothesis” (EMH) of Bitcoin transactions.
EMH is a controversial theory that researchers claim helped develop models capable of outperforming HODL strategies by nearly 300% in simulated cryptocurrency portfolios.
According to their research paper:
“We managed to generate models whose predictions enable investors to achieve higher profits than following a well-known buy and hold strategy.”
The core idea of EMH is the stock price of an asset reflect Its fair market value and all applicable market information. If this were true, then it would be impossible to beat the market by trying to time or intuitively predict winning stocks.
Typically, proponents of the efficient markets hypothesis suggest that instead of trying to beat the market by picking up undervalued stocks at the right time, investors should instead put their money into a low-cost passive portfolio.
Meanwhile, opponents of the efficient markets hypothesis tend to refute this reasoning, pointing out that some investors, such as Buffett, have built their entire careers by beating the market.
The Greek research team, whose research in the aforementioned paper was limited to observations of the Bitcoin market, said that the efficient market hypothesis could be applied to cryptocurrency trading as an alternative to the standard “buy and hold” or hold method to avoid Market volatility.
To test this, the researchers developed four different artificial intelligence models and trained them using multiple data sets. After training and testing, they selected models optimized for “beating the market” and holding strategies.
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According to the team, the best model achieved returns 297% higher than the baseline. This goes some way to proving that the efficient market hypothesis is a useful tool for Bitcoin and cryptocurrency traders. However, it is worth mentioning that the authors conducted their research using historical data and simulated portfolio management.
The results of this study, while empirical, may not change the minds of those who strongly oppose the efficacy of the EMH.
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