Market Efficiency Of Cryptocurrency And Its Pricing Mechanism

Since the advent of bitcoin in 2009,all kinds of digital currencies have emerged.There are many differences in the way of currency creation,storage and circulation between the currency which is originally designed to resist currency abuse and promote social equity and efficiency and the legal currency which is widely used in the world.In terms of social significance.On the one hand,cryptocurrency has many good application scenarios as the application of blockchain technology,on the other hand,cryptocurrency as a new thing has many disadvantages,such as its anonymity is easy to be used by many elements for money laundering and other illegal and criminal capital transactions;the low transparency of market information causes the price of cryptocurrency to be easily manipulated to damage the interests of investors;ICO' providing hotbeds for illigal financing? From the perspective of financial market research,cryptocurrency has become a new type of asset.Studying this new financial asset,which is different from the traditional one,can help us understand the essence of financial transaction more deeply.This paper's contribution mainly focus on two aspects.On one hand,based on the existing research on the effectiveness of cryptocurrency market,we expand the research on the relevant factors of market effeciency,and try to understand the contradictory empirical evidence on these issues.In this paper,we find that the cryptocurrency market is not always effective,and previous studies have drawn contradictory conclusions because of the different selection of time window,so we have drawn different conclusions in the average sense.When the market volatility is high,most market participants are dominated by irrational emotions of greed or fear,so the market efficiency is low;when the market volatility is low,the impact of price fluctuation on market participants is small,and the trading direction chosen by irrational investors can offset each other as assumed by the efficient market hypothesis,so that the market can maintain its efficiency.On the one hand,this finding explains the previous conflicting empirical evidence,and on the other hand,it provides a way to regulate cryptocurrencies and understand the different degrees of effectiveness of mainstream financial markets.On the other hand,as a new kind of asset.When investors invest,they will always face such problems as the balance between risk and return,and the proportion of different assets in the portfolio.This paper verifies the correlation between the mainstream cryptocurrency and stock market,foreign exchange,bulk commodity and precious metal,and finds that the correlation between cryptocurrency and various traditional assets is very low,and its return rate is difficult to be explained by stock multi factor model,commodity,foreign exchange and precious metal return rate;however,the whole market has strong synchronization,and different cryptocurrency return rates can use the specific market factors of cryptocurrency,Marketcap factor and momentum factor.The above work provides a more general framework for the risk return trade-off of cryptocurrency,and points out that the low correlation between cryptocurrency and other large categories of assets can be used to improve the Sharpe ratio of the portfolio and the expected rate of return.