What are the assumptions of the efficient market hypothesis in relation to cryptocurrency?

3 answers

• Dec 18, 2021 · 3 years ago
  The efficient market hypothesis assumes that all relevant information about a cryptocurrency is instantly and fully reflected in its price. This means that any new information, such as news or market developments, will be quickly incorporated into the price, leaving no room for investors to consistently outperform the market. In other words, the hypothesis suggests that it is impossible to consistently predict future price movements based on historical data or any other form of analysis. This assumption is based on the belief that markets are efficient and that any deviations from efficiency are quickly corrected by rational investors.
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• Dec 18, 2021 · 3 years ago
  According to the efficient market hypothesis, cryptocurrencies are assumed to follow a random walk pattern, meaning that their price movements are unpredictable and cannot be consistently forecasted. This assumption is based on the idea that market participants are rational and make decisions based on all available information. Therefore, any attempt to predict future price movements or exploit market inefficiencies would be futile. The hypothesis also assumes that transaction costs, such as fees and slippage, are negligible, allowing investors to freely buy and sell cryptocurrencies without any significant impact on prices. However, it's important to note that the efficient market hypothesis has been subject to criticism and debate, with some arguing that it doesn't fully capture the complexities and unique characteristics of the cryptocurrency market.
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• Dec 18, 2021 · 3 years ago
  The efficient market hypothesis, as applied to cryptocurrency, assumes that all market participants have equal access to information and that there are no barriers to entry or exit. This means that everyone has the same opportunity to buy or sell cryptocurrencies at any given time and at the prevailing market price. The hypothesis also assumes that there are no restrictions on trading, such as limits on the amount of cryptocurrency that can be bought or sold, and that there are no transaction costs or taxes. Additionally, the efficient market hypothesis assumes that all market participants are rational and make decisions based on all available information, without being influenced by emotions or biases. However, it's important to note that the efficient market hypothesis is just a theory and may not fully reflect the reality of the cryptocurrency market, which is known for its volatility and speculative nature.
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