Economists from Yale University have come up with a technique to predict the price of bitcoin based on the cryptocurrency's past behaviour.

The notoriously volatile cryptocurrency has fluctuated between $6,000 and $9,000 over the last few months, with its current value hovering around $6,343, however there patterns within these market movements.

Yukun Liu and Aleh Tsyvinski analysed seven years of bitcoin price data to figure out which indicators can be used to determine the future price of bitcoin. The Yale economists also studied ripple and ethereum to see whether other cryptocurrencies followed the same price patterns as bitcoin.

Bitcoin's volatile history in pictures Show all 8 1 /8 Bitcoin's volatile history in pictures Bitcoin's volatile history in pictures Satoshi Nakamoto creates the first bitcoin block in 2009 On 3 January, 2009, the genesis block of bitcoin appeared. It came less than a year after the pseudonymous creator Satoshi Nakamoto detailed the cryptocurrency in a paper titled 'Bitcoin: A peer-to-Peer Electronic Cash System' Reuters Bitcoin's volatile history in pictures Bitcoin is used as a currency for the first time On 22 May, 2010, the first ever real-world bitcoin transaction took place. Lazlo Hanyecz bought two pizzas for 10,000 bitcoins – the equivalent of $90 million at today's prices Lazlo Hanyecz Bitcoin's volatile history in pictures Silk Road opens for business Bitcoin soon gained notoriety for its use on the dark web. The Silk Road marketplace, established in 2011, was the first of hundreds of sites to offer illegal drugs and services in exchange for bitcoin Bitcoin's volatile history in pictures The first bitcoin ATM appears On 29 October, 2013, the first ever bitcoin ATM was installed in a coffee shop in Vancouver, Canada. The machine allowed people to exchange bitcoins for cash REUTERS/Dimitris Michalakis Bitcoin's volatile history in pictures The fall of MtGox The world's biggest bitcoin exchange, MtGox, filed for bankruptcy in February 2014 after losing almost 750,000 of its customers bitcoins. At the time, this was around 7 per cent of all bitcoins and the market inevitably crashed Getty Images Bitcoin's volatile history in pictures Would the real Satoshi Nakamoto please stand up In 2015, Australian police raided the home of Craig Wright after the entrepreneur claimed he was Satoshi Nakamoto. He later rescinded the claim Getty Images Bitcoin's volatile history in pictures Bitcoin's big split On 1 August, 2017, an unresolvable dispute within the bitcoin community saw the network split. The fork of bitcoin's underlying blockchain technology spawned a new cryptocurrency: Bitcoin cash REUTERS Bitcoin's volatile history in pictures Bitcoin's price sky rockets Towards the end of 2017, the price of bitcoin surged to almost $20,000. This represented a 1,300 per cent increase from its price at the start of the year Reuters

Their findings, published in The National Bureau of Economic Researh, established that bitcoin and other cryptocurrencies are entirely distinct from stocks, currencies and other commodities in terms of factors affecting their market movements.

"In contrast, we show that the cryptocurrency returns can be predicted by factors which are specific to cryptocurrency markets," the study explains.

"Specifically, we determine that there is a strong time-series momentum effect and that proxies for investor attention strongly forecast cryptocurrency returns."

This momentum effect was found to strongly affect cryptocurrency, meaning that if bitcoin is performing well then it is likely to continue doing so, at least in the short-term.

The economists designed a "simple strategy" that investors could follow to take advantage of this trend. According to the strategy, an investor should buy bitcoin if its value increases more than 20 per cent in the previous week.

"This strategy generates outstanding returns," Tsyvinski told Yale News.

Bitcoin has experienced a turbulent few months, fluctuating between $9,000 and $6,000 between May and August (CoinMarketCap)

The economists also calculated that there is a 0.3 per cent chance that the value of bitcoin will fall to zero and become useless. This may seem very small, however it is still several degrees of magnitude higher than traditional currencies like the euro (0.009 per cent chance) and the Australian dollar (0.003 per cent chance).

The end of the study addressed the question of how much a typical investor should hold in bitcoin and cryptocurrencies, concluding that it should be between 1 per cent and 6 per cent.

"Of course, one has to remember that, as with any other assets, past performance is not a guarantee of future returns," Tsyvinski said.