Do Fundamentals Drive Cryptocurrency Prices?

58 Pages Posted: 6 Mar 2019 Last revised: 12 Jul 2019

See all articles by Siddharth Bhambhwani

Siddharth Bhambhwani

Hong Kong University of Science & Technology (HKUST) - HKUST Business School; Hong Kong University of Science and Technology

Stefanos Delikouras

University of Miami - Department of Finance

George M. Korniotis

University of Miami; Miami Business School; University of Miami - Behavioral Decision Making Cluster

Date Written: July 12, 2019

Abstract

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 them 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 aggregate 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.

Keywords: Bitcoin, Ethereum, Litecoin, Monero, Dash, Hashrate, Computing Power, Network, Cointegration, Asset Pricing Factors

JEL Classification: E4, G12, G14

Suggested Citation

Bhambhwani, Siddharth and Delikouras, Stefanos and Korniotis, George M., Do Fundamentals Drive Cryptocurrency Prices? (July 12, 2019). Available at SSRN: https://ssrn.com/abstract=3342842 or http://dx.doi.org/10.2139/ssrn.3342842

Siddharth Bhambhwani

Hong Kong University of Science & Technology (HKUST) - HKUST Business School ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Hong Kong University of Science and Technology ( email )

Hong Kong University of Science and Technology
Clearwater bay
Hong Kong, Hong Kong
Hong Kong

Stefanos Delikouras

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

George M. Korniotis (Contact Author)

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-5728 (Phone)

Miami Business School ( email )

University of Miami - Behavioral Decision Making Cluster ( email )

5250 University Drive
Coral Gables, FL 33124
United States

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