Do Fundamentals Drive Cryptocurrency Prices?
58 Pages Posted: 6 Mar 2019 Last revised: 12 Jul 2019
Date Written: July 12, 2019
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: Suggested Citation