As mentioned above, alternatives generate returns that do not mirror the returns of traditionalassets and provide unusual risk exposures. A Yale study conducted by economists Aleh Tsyvinskiand Yukun Liu examined whether the returns of digital assets (specifically bitcoin, ether, and ripple)behave like the returns of other asset classes (stocks, traditional currencies, and precious metals).

Based on Tsyvinski’s and Liu’s analysis, the return behavior of all digital assets (including bitcoin)could not be explained by the risk factors that account for the returns in stocks, currencies, orprecious metals. Additionally, they could not be explained by macroeconomic factors such asnon-durable consumption growth, durable consumption growth, industrial production growth,and personal income growth.

Rather, the economists found that bitcoin’s performance is driven by “cryptocurrency-specificfactors,” such as the momentum effect and proxies for average and negative investor attention.The momentum effect refers to the trend that an asset is likely to continue increasing in value ifit has just increased in value. This is in line with the idea that bitcoin is reflexive in that price andsentiment experience a self-reinforcing effect. The second factor that influences bitcoin price isinvestor attention as measured in part by X (formerly known as Twitter) post counts for “bitcoin.”This can be seen via the Fear & Greed Index.