DP13724 Do Fundamentals Drive Cryptocurrency Prices?
|Author(s):||Siddharth Bhambhwani, Stefanos Delikouras, George Korniotis|
|Publication Date:||May 2019|
|Date Revised:||June 2019|
|Keyword(s):||Asset Pricing Factors, Bitcoin, cointegration, Computing Power, Dash, ethereum, Hashrate, Litecoin, Monero, network|
|JEL(s):||E4, G12, G14|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13724|
We test the theoretical prediction that blockchain trustworthiness and transaction benefits determine cryptocurrency prices. We measure these two fundamentals with blockchain computing power (i.e., hashrate) and network size, respectively, and find a significant long-run relationship between these blockchain characteristics and the prices of five prominent cryptocurrencies. We also document that the returns of the five cryptocurrencies are exposed to fundamental-based risk factors related to computing power and network size, even after controlling for Bitcoin returns and cryptocurrency momentum. In out-of-sample tests, the computing power and network factors can explain the return variation of a broad set of cryptocurrencies.