Identification Strategy

An identification strategy is the logical plan and set of assumptions used to isolate a causal effect from observational data. It involves defining the causal model, selecting appropriate variables, and choosing the statistical methods to address potential biases.

In crypto, an identification strategy might leverage a unique event, such as a protocol hard fork, to observe how different market participants react to a change in rules. The strength of the identification strategy determines the validity of the causal claims.

A robust strategy explicitly states the assumptions being made, such as the exclusion restriction for instrumental variables. It is the core of rigorous research, distinguishing well-supported findings from speculative correlations.

Developing a sound identification strategy requires deep knowledge of both the financial domain and the underlying causal mechanisms. It is the blueprint that guides the entire empirical investigation.