Fundamental Sentiment and Cryptocurrency Risk Premia

73 Pages Posted: 11 Apr 2023 Last revised: 18 Oct 2024

See all articles by Ilias Filippou

Ilias Filippou

Florida State University

My T. Nguyen

Washington University in St Louis, John M. Olin Business School

Ganesh Viswanath-Natraj

Warwick Business School

Date Written: March 27, 2023

Abstract

This paper examines the cross-sectional predictive ability of text-based fundamental factors in the cryptocurrency market. Using BERT topic modeling, we construct a Fundamental Sentiment Index (FSI) from news articles related to cryptocurrencies. We find that cryptocurrencies with high exposure to fundamental sentiment, typically payment and platform tokens, earn a risk premium, while governance tokens hedge against fundamental risks. Currency betas correlate with blockchain value metrics, such as the ratio of users and transactions to market cap. A long-short strategy based on FSI exposure delivers statistically significant returns, highlighting the importance of fundamental sentiment in explaining cryptocurrency returns beyond traditional factors.

Keywords: cryptocurrency, fundamentals, media coverage, textual analysis

JEL Classification: G11, G12, G14, G32

Suggested Citation

Filippou, Ilias and T. Nguyen, My and Viswanath-Natraj, Ganesh, Fundamental Sentiment and Cryptocurrency Risk Premia (March 27, 2023). Available at SSRN: https://ssrn.com/abstract=4402365 or http://dx.doi.org/10.2139/ssrn.4402365

Ilias Filippou

Florida State University ( email )

Tallahasse, FL 32306
United States

My T. Nguyen (Contact Author)

Washington University in St Louis, John M. Olin Business School ( email )

Room 274 Simon Hall
Washington University in St. Louis
St. Louis, MO 63130
United States
6188183228 (Phone)

Ganesh Viswanath-Natraj

Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom
CV4 7AL (Fax)

HOME PAGE: http://https://ganeshvnatraj.netlify.com

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