Read the headline again, no, this does not say that cryptocurrencies
are spreading infectious diseases, however, research is out this week that maps the spread of cryptocurrency
trends, in a similar way to that in which epidemiologists map the spread of disease occurrences in order to monitor outbreaks and pandemics.
I must note that the ‘crypto-mania’ as it is known, is not infectious and despite what a lot of experts say, its not something you can catch directly. You can take your PPE off now.
UK banking group ‘Barclays’ have today published some crypto-mania research that according to Business Insider ‘parallels with the spread of infectious disease’. The research used an epidemic modelling system designed to break down populations into different groups, based on their relationship to a disease, or in this instance, to cryptocurrency, in an attempt to map out the future of cryptocurrency.
According to Business Insider, traditionally, an epidemiologist will focus on people who are susceptible to the disease, people who are directly exposed to this disease, people who have the disease who are infectious and people who no longer have the disease through death or recovery. Then will then work out how many people are in each state, by calculating how many people move from one state to another, this can then be used to add a timeframe and can then map out a journey of how a disease is likely to spread.
Barclays, developed a model through which this can relate to ‘exposure’ to Bitcoin and have used the model to locate similarities between their findings and the facts about Bitcoins
trajectory over the past seven years. According to Business Insider, ‘the results are shockingly similar’. According to Barclays:
"We developed a theoretical model of an asset price with a pool of speculative investors and compared it with actual Bitcoin price behaviour to see what it might imply for the future dynamics; the model has clear parallels with compartmental models of the spread of an infectious disease in epidemiology."
Essentially, as the hysteria around cryptocurrencies engulfed populations, the value increased. Much like with an infection, this can only last so long and thus, eventually an end point is reached. Again, according to Barclays:
"As more of the population become asset holders, the share of the population available to become new buyers – the potential ‘host’ population – falls, while the share of the population that are potential sellers (‘recoveries’) increases. Eventually, this leads to a plateauing of prices, and progressively, as random shocks to the larger supply population push up the ratio of sellers to buyers (Figure 5), prices begin to fall. That induces speculative selling pressure as price declines are projected forward exponentially.”
This is a really interesting method for analysing markets and provides a novel approach to something that can be quite mundane. I can imagine many economists really disliking this but if Business Insider are anything to go by, this seems to have worked, producing very significant findings.
This does have real world applications, despite it sounding like a bit of fun. If epidemiology can be applied to crypto-economics then maybe we can use it to start to make real predictions about market trends and behaviours, where other predictions have fallen short in the past. This in turn will create an environment for safer and wiser investments.
Or maybe, Barclays have just been very lucky with this one, who knows?