Recently, a team of academic researchers from the International Hellenic University and Democritus University of Thrace in Greece published a paper supporting the “efficient market hypothesis” (EMH) for bitcoin (btc) trading.
EMH is a controversial theory that researchers say contributed to the development of models capable of outperforming the hodl strategy by almost 300% in simulated crypto portfolios.
According to his research work:
“We managed to generate models whose forecasts give investors the possibility of registering profits higher than those they would obtain if they followed the well-known buy and hold strategy.”
At the heart of EMH is the idea that the share price of an asset reflects its fair market value and all applicable market information. If true, it would be impossible to beat the market by trying to time it or intuitively predicting winning stocks.
Typically, EMH advocates suggest that instead of trying to beat the market with well-timed undervalued stock picks, investors should place funds in low-cost passive portfolios.
Meanwhile, opponents of the EMH tend to dismiss this line of reasoning by pointing out that some investors, like Warren Buffet, have made entire careers of outperforming the market.
According to the research team in Greece, whose research in the aforementioned article was limited to observations on the bitcoin market, EMH can be applied to cryptocurrency trading as a replacement for the standard “buy and hold” approach, or hodling, to avoid market volatility. .
To test this, the researchers developed four different ai models trained on multiple data sets. After training and testing, they selected models optimized for both “beating the market” and hodling strategies.
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According to the team, the optimal model outperformed initial returns by up to 297%. This lends some credence to the idea that EMH can be 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, although empirical, may do little to change the minds of those who have a strong opinion against the effectiveness of EMH.
