A study published by Warwick Business School claims that cryptocurrencies' value are not driven by any specific economic factors but purely by the mood of the investors.
Cryptocurrencies like bitcoin have been criticised in the past for their volatile price changes and unpredictable value patterns and, since the currencies are not linked to any national economy, the source of their value has been hard to understand.
In the new study “Cryptocurrencies as an Asset Class? An Empirical Assessment” the author Daniele Bianchi concluded that the sentiment of the investors was what determined the digital currencies' value.
He wrote: “It is believed that cryptocurrencies could potentially disrupt financial services and central banks, therefore posing a risk for the stability of prices and the financial system."
The study continued: “Just as the value of a US dollar investment fluctuates based on countless factors such as national interest rates, trade deficit with other countries and government policy, cryptocurrencies trade at prices which are based on the perceived value of the platforms and projects they are associated with."
Bianchi looked at the 14 biggest cryptocurrencies and explained how because of the unpredictable changes in price, cryptocurrencies are not long-term investment solutions.
Iqbal Gandham, managing director of crypto trading platform eToro, said: “Customer sentiment is really important when it comes to new technologies and cryptocurrencies are no exception.”
“In addition, clarity of regulation which currently is a moving target does affect prices and also sentiment. Personally having a relatively stationary price for a few months is a positive, it gives time for the industry to mature.”
The price for bitcoin is now around $8,200 (£6,100), but has faced big ups and downs in the last year after peaking at an all-time high of $19,343 per coin on 16 December last year.