Blockchain Characteristics and Cryptocurrency Returns
54 Pages Posted: 6 Mar 2019 Last revised: 10 Jun 2023
Date Written: May 31, 2023
Abstract
We examine whether blockchain characteristics such as network size and computing power affect cryptocurrency prices and returns. Network size reflects adoption and usage of the blockchain while computing power proxies for the real-world resources expended on securing and confirming transactions. Consistent with theoretical models, we find that cryptocurrency prices exhibit comovement with these two blockchain characteristics. Further, aggregate network and computing power explain the variation in expected cryptocurrency returns at least as well as models with return-based factors such as market, size, and momentum. Overall, our results show that blockchain-based factors are important for explaining cryptocurrency prices and returns.
Keywords: Hashrate, Network, Factor Analysis, GMM, Rolling Estimation
JEL Classification: E4, G12, G15
Suggested Citation: Suggested Citation