Buzz Factor or Innovation Potential: What Explains Cryptocurrencies’ Returns?

Wang S, Vergne J-P (2017) Buzz Factor or Innovation Potential: What Explains Cryptocurrencies' Returns? PLoS ONE 12(1): e0169556. doi:10.1371/journal.pone.0169556

17 Pages Posted: 10 Mar 2017

See all articles by Sha Wang

Sha Wang

University of Western Ontario, Department of Economics

Jean-Philippe Vergne

University College London - School of Management

Date Written: January 17, 2017

Abstract

Cryptocurrencies have become increasingly popular since the introduction of bitcoin in 2009. In this paper, we identify factors associated with variations in cryptocurrencies’ market values. In the past, researchers argued that the “buzz” surrounding cryptocurrencies in online media explained their price variations. But this observation obfuscates the notion that cryptocurrencies, unlike fiat currencies, are technologies entailing a true innovation potential. By using, for the first time, a unique measure of innovation potential, we find that the latter is in fact the most important factor associated with increases in cryptocurrency returns. By contrast, we find that the buzz surrounding cryptocurrencies is negatively associated with returns after controlling for a variety of factors, such as supply growth and liquidity. Also interesting is our finding that a cryptocurrency’s association with fraudulent activity is not negatively associated with weekly returns — a result that further qualifies the media’s influence on cryptocurrencies. Finally, we find that an increase in supply is positively associated with weekly returns. Taken together, our findings show that cryptocurrencies do not behave like traditional currencies or commodities — unlike what most prior research has assumed — and depict an industry that is much more mature, and much less speculative, than has been implied by previous accounts.

Keywords: bitcoin, cryptocurrency, blockchain, asset pricing, currency, media, technology, innovation, speculation

Suggested Citation

Wang, Sha and Vergne, Jean-Philippe, Buzz Factor or Innovation Potential: What Explains Cryptocurrencies’ Returns? (January 17, 2017). Wang S, Vergne J-P (2017) Buzz Factor or Innovation Potential: What Explains Cryptocurrencies' Returns? PLoS ONE 12(1): e0169556. doi:10.1371/journal.pone.0169556, Available at SSRN: https://ssrn.com/abstract=2930237

Sha Wang

University of Western Ontario, Department of Economics ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Jean-Philippe Vergne (Contact Author)

University College London - School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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