A recent research paper from the International Hellenic University and Democritus University of Thrace in Greece has put forward the “efficient market hypothesis” (EMH) as a potential replacement for the traditional “buy and hold”, or hodling approach, when it comes to cryptocurrency trading. The paper claims that EMH can result in a portfolio outperforming the hodl strategy by up to 297%.
At the core of EMH is the notion that the share price of an asset corresponds to its fair market value and all applicable market information. Therefore, it is impossible to outmaneuver the market by trying to time it or by selecting winners intuitively. Generally, proponents of EMH recommend investing in low-cost passive portfolios instead of attempting to beat the market with well-timed undervalued stock picks.
Opponents of EMH, on the other hand, often point out that there have been many successful investors who have managed to beat the market, such as Warren Buffet.
To study the potential of EMH for cryptocurrency trading, the Greek research team created four different artificial intelligence models. These were trained with multiple data sets and the model that performed best was able to outperform the baseline returns by 297%. However, it is important to note that the research was limited to observations on the Bitcoin market and was conducted using historical data and simulated portfolio management.
While the results of this study are empirical, they may do little to sway the opinion of those who are firmly against the efficiency of EMH.