DP13724 Do Fundamentals Drive Cryptocurrency Prices?
|Author(s):||Siddharth Bhambhwani, Stefanos Delikouras, George Korniotis|
|Publication Date:||May 2019|
|Date Revised:||November 2019|
|Keyword(s):||Asset Pricing Factors, Bitcoin, cointegration, Computing Power, Dash, ethereum, Hashrate, Litecoin, Monero, network|
|JEL(s):||E4, G12, G15|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13724|
We examine if two fundamental blockchain characteristics affect cryptocurrency prices. They are computing power (hashrate) and network (number of users), which are related to blockchain trustworthiness and transaction benefits. We find a significant long-run relationship between these characteristics and the prices of prominent cryptocurrencies. We also document that cryptocurrency returns are exposed to fundamental-based risk factors related to aggregate computing power and network, even after controlling for Bitcoin return 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, whose fundamentals are not included in the factors.