Study: Shorting Difficulties and Heterogeneous Beliefs Drive Speculative Cryptocurrency Prices $DASH

Wang Chun Wei, Ph.D. and a finance lecturer at the University of Queensland in Australia, argues in a new working paper that a significant portion of cryptocurrency values come from the heterogeneous belief that investors can sell a coin to another individual at a higher price.

Wei describes the ability to sell to another party at a higher price as the resell option hypothesis and describes how this could lead to mispricing of cryptocurrencies. To better discern between intrinsic and speculative value, Wei focuses on ‘joke’ and ‘scam’ coins as a natural experiment since they “cannot be directly used as a medium of exchange, and nor do they provide the holder with any claims to future cashflows”. He then examined the “empirical relationship between turnover, mispricing and volatility” for mainstream, joke, and scam coins.

“From Virtual Coin Squad, which tracks cryptocurrency acceptance, only Bitcoin, Litecoin and Dash are widely accepted”

Due to the lack of most coins seeing everyday usage, the paper does finds “empirical evidence in support of the resale option hypothesis in cryptocurrency markets”. Wei also finds “ample empirical evidence in support of anecdotal claims that cryptocurrency prices are supported by the hope of selling it to somebody else at a higher price”. One reason suggested for prices not counterbalancing lower is the lack of easy ways to short coins in the cryptocurrency market.

Importance of usability features

While the study had mixed statistics in certain areas, it nevertheless discovered relatively strong relationships between trading turnover and mispricing, which does highlight the need for everyday usability. The fact that many coins see price increases only from speculative trading to others at a higher price is the definition of a bubble, but the good news is that this is not absolutely true for every coin in the cryptocurrency sector. The study conducted a weighted average of coins in the sector to discover overall trends, but as Wei mentioned, coins like Bitcoin, Litecoin, and Dash are seeing wider usage adoption. The adoption creates real usability, and thus, real demand for these coins other than just trading value with the hopes that its future exchange price will increase.

The complication of not having real uses is that no consumer or merchant problems are being solved, which was the reason cryptocurrency was created in the first place; provide a decentralized and peer-to-peer alternative to the current monetary and financial infrastructure. Vitalik summarized this dynamic earlier in the year by tweeting that the cryptocurrency community “[n]eed[ed] to differentiate between getting hundreds of billions of dollars of digital paper wealth sloshing around and actually achieving something meaningful for society”. Thus, those cryptocurrencies that focus on creating real value for consumers by solving market inefficiencies stand to have their overall price be composed more of real prices and less of speculative prices.

Dash prioritizes everyday usability

Dash has focused on being a consumer friendly currency for everyday transactions no matter how large or small. Dash is partially able to achieve this because of its record low transaction fees, extremely fast confirmation times, and great security. Dash then supplements these attributes with its DAO Treasury to fund other network developments and community outreach to make using Dash as easy as possible for consumers. Dash is planning further enhancements with the coming series of Evolution upgrades, but is already providing real payment solutions for individuals in Venezuela, Colombia, and other individuals around the world. These features allow Dash to be a decentralized, peer-to-peer, digital currency without sacrificing too much ease of use that consumers are accustomed to with the old financial system and have come to expect from their money.

This emphasis on usability has enabled Dash to be accepted at over 4,000 merchants, globally, which has greatly expanded consumers’ ability to use Dash. CoinFairValue displays just how strong Dash usability is compared to its peers since Dash is shown to be one of the top coins when evaluated on fair value, which takes into account consumer usability. Moving forward, Dash has outlined an emphasis to continue its growth with a focus on usability, which will solidify its real price portion of its total exchange price and will contribute to increasing its sustainability and decreasing its volatility.