Value Premium, Network Adoption, and Factor Pricing of Crypto Assets
49 Pages Posted: 15 Dec 2021
Date Written: December 2021
We document characteristic-based anomalies in over 4000 cryptocurrencies. We find that cryptocurrency returns exhibit momentum in the largest-cap group but reversal in other size groups. We identify strong crypto value and network adoption premia, from which we derive two novel factors to add to crypto market, size, and momentum factors. The resulting C-5 model outperforms extant models in pricing the cross-section of crypto assets, as revealed in most standard tests. We also provide the first comprehensive categorization of about 700 cryptocurrencies based on their economic functionality and use tools from international asset pricing to demonstrate strong segmentations across token categories.
Keywords: Asset Pricing, Cryptocurrency, Factor Model, Network Effect, Segmentation
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