And That's Propping Up Prices, Study Finds

Discord and personal sentiment alone isn't enough to keep prices above zero, according to research from Wang Chun Wei, Ph.D., a finance lecturer at the University of Queensland in Australia.

According to Wei, if it was easier to bet against cryptocurrency prices through short positions - when someone borrows, then sells an asset with the expectation of buying it back at a lower price in an effort to make a profit on the difference - more of those assets would go to zero.

"Daily volatility of bitcoin is around four percent. This is too high to be simply based on informational changes in fundamental value," Wei, who previously studied whether Tether's controversial stablecoin, USDT, could be used to prop up the price of bitcoin, told CoinDesk.

The resale option hypothesis, which originated in 2003 from Princeton researchers Jose Scheinkman and Wei Xiong, argues that an asset tends to favor the most optimistic participants in a market when two conditions persist: lots of disagreement about price and impediments to shorting the asset.

While Wei conducted his study on altcoins - particularly those with shady reputations - he reasoned that what he found should also explain some of the strangeness behind bitcoin's price movements.

According to Wei, differences of opinion help illuminate why joke coins tend to hold on to their price a bit longer than cryptocurrencies identified as fraudulent.

In his paper, he tested "The statistical significance of the interactions between turnover, traded price and realized volatility" to infer a value.

"Theoretically, the introduction of shorting instruments should reduce the resale option value, and consequently reduce bitcoin price."

If Wei's analysis proves accurate, that could increase pressure on more of the tokens that have been able to maintain higher prices.

As Wei wrote in the paper, "Overall, we provide ample empirical evidence in support of anecdotal claims that cryptocurrency prices are supported by the hope of selling it to somebody else at a higher price."