Cryptocurrencies aren’t really a traditional asset class since there’s no significant relationship between the returns on cryptocurrencies and returns on traditional asset classes, according to new research.

There is a marginally significant correlation between the returns on cryptocurrencies and the returns on futures contracts on both gold US:GCG9 and WTI crude oil US:CLG9 , but cryptocurrencies’ high volatility limits its usefulness for risk diversification and hedging.

That volatility contradicts the claim that cryptocurrencies could represent a “store of value”, meaning they can be saved and retrieved in the future without having lost much value in real terms, says Professor Daniele Bianchi of the University of Warwick Business School in Coventry U.K. in his paper, “Cryptocurrencies as an Asset Class? An Empirical Assessment.” The paper was published as part of the Warwick Business School Finance Group Research Series.

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There are about a thousand actively quoted cryptocurrencies, the most well-known being bitcoin.

On Wednesday, a single bitcoin BTCUSD, +0.07% changed hands at $4,034.68.

Two of the world’s largest futures exchanges, CME Group CME, +0.30% and the Chicago Board Options Exchange CBOE, -1.78% began listing futures contracts on bitcoin in December 2017, a significant step in giving investors a mainstream instrument to trade that advocates of digital currencies had hoped would lead to a surge in interest. The Cboe Global Markets February contract is US:XBTG9 the CME Group February contract US:BTCG9 .

However, volumes continue to be light, and volatility high.

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Bianchi cites anecdotal evidence to attribute the increasing demand for bitcoin prior to 2017 to the intentional devaluation of the Chinese yuan and the government policy of capital controls. “It is quite evident that until early 2017 most of bitcoins were bought by using Chinese yuan which arguably means that trading activity on active exchanges was primarily coming from Chinese investors” who were looking for “a safe and anonymous way to send their money offshore.”

There was a dramatic increase in valuations for the whole cryptocurrency market and then a substantial market a drop that occurred in the summer of 2017, when almost every cryptocurrency experienced massive losses. Bianchi writes that the drop can be partly explained by the “hard-fork” of the original bitcoin which generated bitcoin cash BCHUSD, -0.12% .

Cryptocurrencies are not comparable to any asset class in terms of expected returns, according to Bianchi. The mild correlation with gold could support the view that cryptocurrencies share the same hedging features of precious metals. However, cryptocurrencies consistently show high returns in the range of 2% to 6% on a weekly basis as well as high volatility.

VIX, +1.20% “Such high volatility somewhat limits the usefulness of cryptocurrencies for risk diversification and hedging, and more importantly contradicts the idea that cryptocurrencies represent a store of value,” concludes Bianchi.

Currencies are a store of value when they can be saved and retrieved in the future without losing much value in real terms. “As a matter of fact, writes Bianchi, “abrupt price fluctuations are inconsistent with the idea that cryptocurrencies are a savings instrument for the short-term, let alone for the medium-to-long term.”

Volatility in cryptocurrencies is driven by regulatory interventions, technological innovations and, unlike fiat currencies, the risk of security breaches and criminal hacking, according to Bianchi’s research.

In January 2018 bitcoin prices and the value of other cryptocurrencies tanked when Tokyo-based Coincheck Inc. revealed that as much as $530 million in digital assets had been stolen. Mt. Gox, at one point the world’s busiest bitcoin exchange, collapsed in February 2014 and after losing 850,000 bitcoin worth around half a billion dollars at that time.

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Bianchi concludes neither shocks to inflation expectations nor shocks to the yield curve significantly affect market activity in cryptocurrency markets. Instead, he writes, trading activity is significantly driven by past performances up to four weeks ahead rather than by macroeconomic events. Instead of an investment in a country’s economy, holding a cryptocurrency can be seen as an investment in the network and the technology behind it.

“Ultimately, the value of a coin reflects investor confidence in the protocol design and the prospects of being a viable method of payment. These factors generate demand pressure, which in turn generate wild price fluctuations given that, unlike fiat money, cryptocurrencies are in small and finite supply and, therefore ,are highly dependent on demand shocks,” writes Bianchi.