Value Premium, Network Adoption, and Factor Pricing of Crypto Assets

65 Pages Posted: 15 Dec 2021 Last revised: 16 May 2022

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

George Andrew Karolyi

Cornell University - SC Johnson College of Business

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University

Weiyi Zhao

Tsinghua University

Date Written: April 1, 2022

Abstract

We document characteristics-based return anomalies in a large cross-section (>4,000) of crypto assets. Cryptocurrency returns exhibit momentum in the largest-cap group, reversals in other size groups, and strong crypto value and network adoption premia, from which we derive two novel factors to add to the cryptocurrency versions of market, size, and momentum factors. The resulting C-5 model outperforms extant models in pricing the cross-section of crypto assets and test portfolios in-sample and out-of-sample. We also provide the first comprehensive classification of all major cryptocurrencies based on their economic functionality. We then adopt methodologies from international finance to demonstrate significant market segmentation across token categories, underscoring the importance for considering token categories in investment and regulatory policymaking.

Keywords: Blockchain, Cryptocurrency, DeFi, Factor Models, Network Effect, Market Segmentation

JEL Classification: F30, G10, G11, G15

Suggested Citation

Cong, Lin and Karolyi, George Andrew and Tang, Ke and Zhao, Weiyi, Value Premium, Network Adoption, and Factor Pricing of Crypto Assets (April 1, 2022). Available at SSRN: https://ssrn.com/abstract=3985631 or http://dx.doi.org/10.2139/ssrn.3985631

Lin Cong (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.com/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

George Andrew Karolyi

Cornell University - SC Johnson College of Business ( email )

174A STATLER HALL
ITHACA, NY 14853
United States
6142820229 (Phone)

HOME PAGE: http://https://www.johnson.cornell.edu/faculty-research/faculty/gak56/

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University ( email )

No.1 Tsinghua Garden
Beijing, 100084
China

Weiyi Zhao

Tsinghua University ( email )

Beijing, 100084
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
784
Abstract Views
3,539
rank
46,932
PlumX Metrics