What Factors Give Cryptocurrencies Their Value: An Empirical Analysis

Abstract

This paper aims to identify the likely source(s) of value that cryptocurrencies exhibit in the marketplace using cross sectional empirical data examining 66 of the most used such 'coins'. A regression model was estimated that points to three main drivers of cryptocurrency value: the difficulty in 'mining' for coins; the rate of unit production; and the cryptologic algorithm employed. Bitcoin-denominated relative prices were used, avoiding much of the price volatility associated with the dollar exchange rate. The resulting model can be used to better understand the drivers of relative value observed in the emergent area of cryptocurrencies.

Keywords: Bitcoin, cryptocurrencies, altcoins, asset pricing, money, payment systems, currency exchanges

JEL Classification: D58, E42, E47, G1, L17, L86