Do Fundamentals Drive Cryptocurrency Prices?

64 Pages Posted: 6 Mar 2019 Last revised: 1 Nov 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: October 30, 2019

Abstract

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

Bhambhwani, Siddharth and Delikouras, Stefanos and Korniotis, George M., Do Fundamentals Drive Cryptocurrency Prices? (October 30, 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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