The Economic Nature of Cryptocurrencies as a Determinant of Market Inefficiency and the Structural Limits of Their Value Predictability (Economic scope)

Summary

• Cryptocurrencies are defined as hybrid digital assets combining conditional monetary functionality, investment demand, network utility and technological properties.p.1
• Production costs, protocol-based scarcity, transactional utility, adoption and expectations affect prices but do not create a stable valuation anchor.p.1
• Cryptocurrencies perform monetary functions selectively rather than comprehensively, so the monetary function alone cannot explain market prices.p.4
• Blockchain transparency should not be equated with full market transparency, because custodial, over-the-counter and derivatives activity weakens the link to on-chain data.p.6
• The framework separates short-term price predictability from long-term value predictability, which are not equivalent.p.7
• Market efficiency in cryptocurrencies is neither permanently absent nor consistently present; it is heterogeneous, time-varying and structurally vulnerable to disruptions.p.8

Key insights

1. Reflexive pricing, fragmented trading infrastructure, information asymmetry and limits to arbitrage make market efficiency heterogeneous and time-varying.p.1
2. Bitcoin only partially performs the functions of a medium of exchange, unit of account and store of value.p.3
3. The same cryptocurrency may be seen as a long-term store of value by some holders and as a high-risk speculative asset by others.p.4
4. Scarcity creates value only if demand for the scarce object persists, so a limited supply cannot provide a complete valuation anchor.p.5
5. Price growth can stimulate adoption and adoption can support price, making it difficult to separate network effects from price effects.p.6
6. Momentum and investor-attention effects show that returns may be partially forecastable, but such relationships are historically contingent.p.7
7. Forecast errors cannot be attributed only to methodological deficiencies; more complex models cannot eliminate structural breaks or changing market regimes.p.7
8. Limited predictability of cryptocurrency value is not merely a temporary result of market immaturity but partly endogenous to their economic nature.p.8