Do Fundamentals Drive Cryptocurrency Prices?
64 Pages Posted: 6 Mar 2019 Last revised: 1 Nov 2019
Date Written: October 30, 2019
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.
Keywords: Bitcoin, Ethereum, Litecoin, Monero, Dash, Hashrate, Computing Power, Network, Cointegration, Asset Pricing Factors
JEL Classification: E4, G12, G14
Suggested Citation: Suggested Citation