ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 6 / UIF:8.2 / MODERNSCIENCE.UZ
183
CRYPTOCURRENCY, FACTORS AFFECTING IT, ITS ROLE IN THE WORLD
ECONOMY AND STRATEGIES FOR CRYPTOCURRENCY MANAGEMENT
M T Ortikova
1
N K Sadullaeva
2
1
Department of Applied Mathematics, Tashkent State University of Economics,
Tashkent, Uzbekistan
2
Department of Mathematics and Computer Science, University of York, York, UK
https://doi.org/10.5281/zenodo.8014899
Abstract.
Cryptocurrency is a kind of digital currency, accounting for internal units of
account of which is provided by a decentralized payment system (there is no internal or external
administrator or any of its analogues), operating in fully automatic mode. By itself, the
cryptocurrency does not have any special material or electronic form – it is just a number
indicating the amount of data of settlement units, which is recorded in the corresponding position
of the information packet of the data transfer protocol and often is not even encrypted, like all
other information about transactions between the addresses of the system.
Keywords:
Cryptocurrency, bitcoin, market, exchange, code, world economics,
blockchain, technology, inflation, momentum, network, financial pyramids, mining.
КРИПТОВАЛЮТА, ФАКТОРЫ, ВЛИЯЮЩИЕ НА НЕЕ, ЕЕ РОЛЬ В
МИРОВОЙ ЭКОНОМИКЕ И СТРАТЕГИИ УПРАВЛЕНИЯ КРИПТОВАЛЮТОЙ
Аннотация.
Криптовалюта – это разновидность цифровой валюты, учет
внутренних расчетных единиц которой обеспечивается децентрализованной платежной
системой (отсутствует внутренний или внешний администратор или какой-либо его
аналог), работающей в полностью автоматическом режиме. Сама по себе криптовалюта
не имеет какой-либо особой материальной или электронной формы — это просто число,
обозначающее количество данных расчетных единиц, которое фиксируется в
соответствующей позиции информационного пакета протокола передачи данных и
зачастую даже не шифруется, как и вся остальная информация о транзакциях между
адресами системы.
Ключевые слова:
Криптовалюта, биткойн, рынок, биржа, код, мировая экономика,
блокчейн, технология, инфляция, импульс, сеть, финансовые пирамиды, майнинг.
Body
Introduction
There is no generally accepted definition of cryptocurrency, and in the scientific
community it is defined differently and rather cumbersomely through characteristics and functions.
In the everyday sense, cryptocurrency can be defined as a digital code that is transmitted inside a
distributed registry system, or blockchain. This is a system of digital codes protected by a cipher.
Bitcoins do not have a bank. They are everywhere and nowhere at the same time: the bank is a
global network of wallet owners, where everyone can enter. Bitcoins cannot be printed in the exact
amount: they are born by their own laws, and only from those who donate their computing power
to them. Bitcoins can neither be captured nor a cipher picked up by a supercomputer — the entire
bitcoin network itself is doing exactly this: continuous attempts to pick up a cipher. Following
Bitcoin, other cryptocurrencies immediately appeared, and their number is huge today. The first
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 6 / UIF:8.2 / MODERNSCIENCE.UZ
184
cryptocurrency appeared ten years ago, but there is still no clear opinion about digital money in
the world. In this article, we will consider whether the cryptocurrency exchange is connected with
the global economy, what common factors link the stock exchange and the cryptocurrency
exchange. We will also consider the threats and positive aspects of the development of usage of
the cryptocurrency and the strategy of the cryptocurrency market and give an assessment.
Methodology
The index of the general cryptocurrency market behaves almost the same as the Bitcoin
(the most popular cryptocurrency) index. But the overall market is much broader, so it is hard to
assess the whole cryptocurrency market by just considering one of them. Therefore, we will
analyze the cryptocurrency market in relation to the global stock market, exploring similarities and
differences, while denying or proving some myths. There are several most popular interpretations
of the cryptocurrency:
1.
Just a type of currency;
2.
The digital equivalent of gold;
3.
A commodity;
4.
An investment on the future of technology;
5.
Protection from inflation at the global level.
Results
The average yield and volatility (risk) of cryptocurrencies is much greater than stocks. But
the
Sharpe coefficient =
yield
volatility
for cryptocurrencies is 0.17, and for stocks 0.11 is almost the
same, which matters more than profitability and volatility in themselves.
1.
Cryptocurrencies are not like regular currencies. Cryptocurrency is either simpler or more
complex.
2.
Cryptocurrency is not digital gold, as there are no common influencing factors on the two
markets.
3.
The quotation of cryptocurrencies and stock prices do not depend on general factors,
according to the Fama-French pricing model and other factors regarding international finance.
4.
According to the zoo factor, all 155 market indicators work on predicting the behavior of
the stock market, but not on cryptocurrencies. So, cryptocurrency is not a bet on the future of
technology.
5.
Cryptocurrency is not affected by macro factors.
6.
Inflation is almost impossible for cryptocurrencies, as it is difficult to change the number
of units of cryptocurrency.
So, these were factors, which do not affect the market of cryptocurrency. Here we come to
factors, which affect this:
1.
The network factor affects cryptocurrencies – there are a lot more users, they want to join
it much more (for example, Bitcoin) and it becomes much more valuable.
2.
Momentum is an important predictor of profitability – what is growing now and will grow.
Buyers of cryptocurrencies now do not realize the speed of using cryptocurrencies as a means of
payment, which creates momentum (slow currency adoption).
3.
Investors' attention also affects momentum.
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2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 6 / UIF:8.2 / MODERNSCIENCE.UZ
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The ratio of the price of cryptocurrency to profitability does not predict, as in a normal
market. If the price is inflated for a cryptocurrency (usually popular and large coins), money flows
into this cryptocurrency, the premium disappears. Large coins have a high momentum (valuable
now and more information for the future). Small cryptocurrencies have premiums, and this means
higher profitability (The Economy of Cryptocurrencies, 2021).
The cryptocurrency exchange rate generally depends on popularity in the broad strata of
society. But you should monitor the political situation (for example, China banned it).
Furthermore, it should be noted that cryptocurrencies are beginning to enter and influence other
markets (for example, agriculture, the black market).
Another way is that coins can be mined. To do this, miners solve a mathematical problem,
the purpose of which is to add a new information block to the cryptocurrency blockchain. The
more cryptocurrencies there are in the blockchain, the more complex the cipher that miners need
to unravel in order to make a record. Accordingly, they need to invest in computing power and
electricity to mine every next unit of currency. For a successful solution, they receive a reward
(usually it is the extracted units of currency), but the more often the efforts of miners turn into
success, the less the reward (SINELNIKOVA-MURYLEVA, 2021). It depends on the power of
the computer (the more graphics cards processed, the more units of cryptocurrency can be mined)
and electricity.
Analysis
Regarding the future of the cryptocurrency, it may have both positive and negative aspects
on the users, banks, government system and world economy (The Economy of Cryptocurrencies,
2021).
Here we analyze drawbacks in regard to the world economy:
1.
Connection with the black market (Silk Road, Alphabay) by pumping governmental funds
into personal property;
2.
Convenient for building financial pyramids, undermines the trust of citizens and has a
negative impact on the financial market (for example, companies like Bitcoin Savings and Trust,
MyCoin);
3.
Decentralization of cryptocurrencies and their great influence may limit the economic
independence of the state;
4.
May lead to the disappearance of banks and intermediaries, being a threat to the political
system.
Also, there are positive influences:
1.
Saving money on commissions;
2.
Digitalization of the economy;
3.
Can be a reliable way to save investments.
Anyone can contribute to the development of cryptocurrency – add code, make a currency
(for example, the Linux Foundation company). Fraudulent schemes occupy only 2.5% of the
cryptocurrency market. In the long term: cryptocurrencies are adapting to a changing market
(Makridin, 2021).
We have indicated above – what factors determine the future and, in general, the
cryptocurrency itself, what negative or positive effects can be expected. In order to fully
understand the process itself or enter the cryptocurrency market, knowledge about the strategies
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2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
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of spending and buying cryptocurrencies, about the differences between exchanges and markets is
also required.
What you should pay attention to when choosing a cryptocurrency exchange according to
the recommendations of Tyrone Ross, financial adviser and CEO of Onramp Invest:
1.
Accessibility (it is legal to work with your currency, for example, sum, hryvnia);
2.
Security;
3.
Transaction commission (sometimes a high commission means that the exchange ensures
users' assets or the process is simpler);
4.
Liquidity (sufficient trading volume);
5.
Coins;
6.
Educational materials;
7.
Where assets are stored.
Now let's analyze the difference between different types of earnings with cryptocurrency:
1.
Hodl – buying and waiting for prices to rise;
2.
Staking – blocking coins in the wallet, they are used to confirm transactions, for this they
receive a percentage;
3.
Farming – to lend and receive a percentage of the transaction fee;
4.
Cryptocurrency trading – earnings on the difference in cryptocurrency exchange rates.
Types of trading:
1.
High-frequency trading – ten transactions per second using a bot connected to the
exchange;
2.
Scalping – a small profit from a large number of transactions;
3.
Range trading – on the assumption that cryptocurrency prices will fluctuate over a certain
range;
4.
Technical analysis – examines how the value of the asset and the size of trades have
changed over the period;
5.
Analysis of news and sentiment – prediction of human actions and reactions.
There are some examples and statistics about the international cryptocurrency markets:
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(Chepurko, 2022)
There are plenty of strategies and advices regarding the management of cryptocurrency.
Let’s consider some of them, which are based on exact formulas and statistics:
"Golden Cross" and "Cross of Death":
This is a method that uses two moving averages, MA. That is, the indicator line of the chart,
which shows the average price of an asset for a certain period of time. For this strategy, you are
looking for where the curves for the previous 50 days and for the previous 200 days intersect.
There are two types of intersection:
1.
Convergence, that is, the golden cross – when 50 MA moves up and 200 MA moves
down. It means: the short-term momentum exceeds the long-term momentum, that is, you need to
buy a crypt. This happens when buyers return to the market and increase prices.
2.
Divergence, that is, the cross of death – when 50 MA goes down and 200 MA goes
up. This means that the short-term momentum is falling compared to the long-term momentum. It
is necessary to sell. This happens when a large number of traders decide to exit the market and sell
their assets.
This is a long-term strategy that works best for 18 months or more.
(Chepurko, 2022)
A trend changes or divergence of the RSI:
RSI means an index of relative strength. This is an indicator on the chart that measures
momentum by calculating the average number of gains and losses over a 14-day period.
The indicator line ranges from 0 to 100. If the line has risen above 70 points, the asset is
considered overbought, that is, its price will soon go down. If the line falls below 30, the asset is
considered oversold – its value is likely to rise soon. Sometimes it can give incorrect results
(Chepurko, 2022).
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«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 6 / UIF:8.2 / MODERNSCIENCE.UZ
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Conclusion
In conclusion, the main idea of the cryptocurrency market is to create a system that allows
irreversible transactions between 2 parties without intermediaries. Cryptocurrencies and crypto
economics are a particular example of blockchain technology. Accordingly, any cryptocurrency is
inseparable from the technological platform on which it is traded. We have come to the conclusion
that cryptocurrency cannot be considered as an ordinary currency, the equivalent of gold, and many
factors that determine an ordinary stock exchange cannot predict what will happen in the
cryptocurrency market. It mainly depends on the network itself, the attention of investors and
momentum. So, cryptocurrency can be obtained both by an economic approach, considering all
these factors or by mining (which includes mathematics, complex algorithms and strong
computers). In addition, for proper further management and income with the help of
cryptocurrencies, you need to have knowledge of global crypto exchanges and strategies, such as
the Golden and Death Cross, RSI. We also analyzed exactly what kind of benefit or loss
cryptocurrencies can lead to in the future international economy. In addition, in Uzbekistan, legal
entities were allowed to mine cryptocurrencies through the use of electricity generated by solar
power plants (as this process requires a vast amount of energy). From 2023, residents of the
country and companies will be able to buy and sell cryptocurrency. The decree was signed by the
President of Uzbekistan Shavkat Mirziyoyev (Keffer, 2022).
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