Do Fundamentals Drive Cryptocurrency Prices?

66 Pages Posted: 6 Mar 2019 Last revised: 11 May 2019

See all articles by Siddharth Bhambhwani

Siddharth Bhambhwani

University of Miami, School of Business Administration, Department of Accounting

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: May 9, 2019

Abstract

We test the theoretical prediction that blockchain trustworthiness and transaction benefits determine cryptocurrency prices. Measuring these fundamentals with computing power and adoption levels, we find a significant long-run relationship between them and the prices of five prominent cryptocurrencies. Conducting factor analysis, we find that the returns of the five cryptocurrencies are exposed to aggregate fundamental-based factors related to computing power and adoption levels, even after accounting for Bitcoin returns and cryptocurrency momentum. These factors have positive risk premia and Sharpe ratios comparable to those of the U.S. equity market. They further explain return variation in an out-of-sample 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? (May 9, 2019). Available at SSRN: https://ssrn.com/abstract=3342842 or http://dx.doi.org/10.2139/ssrn.3342842

Siddharth Bhambhwani

University of Miami, School of Business Administration, Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States

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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