Working Paper: CEPR ID: DP13724
Authors: Siddharth Bhambhwani; Stefanos Delikouras; George Korniotis
Abstract: We examine whether blockchain characteristics such as network size and computing power affect cryptocurrency prices and returns. Consistent with theoretical models, cryptocurrency prices are cointegrated with these two blockchain characteristics. Further, a stochastic discount factor with aggregate network and computing power explains the cross-sectional variation in expected cryptocurrency returns at least as well as models with cryptocurrency return-based factors (market, size, momentum). Overall, our results show that theoretically motivated factors are important sources of risk for cryptocurrency prices and expected returns.
Keywords: hashrate; network; factor analysis; GMM; rolling estimation
JEL Codes: E4; G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cryptocurrency prices (G13) | network size (D85) |
| cryptocurrency prices (G13) | computing power (C89) |
| network size (D85) | cryptocurrency prices (G13) |
| computing power (C89) | cryptocurrency prices (G13) |
| aggregate network size (E10) | expected cryptocurrency returns (G17) |
| computing power (C89) | expected cryptocurrency returns (G17) |