Disentangling market and uncertainty effects in crypto valuation: A portfolio-based analysis

This study examines cryptocurrency valuation using a cross-sectional portfolio approach that integrates equity, commodity, and foreign-exchange market interactions with financial, macroeconomic, and policy uncertainty factors. Portfolios constructed from daily and monthly data are evaluated using returns and Sharpe ratios, while factor sensitivities are estimated through a two-pass regression framework combined with Fama–MacBeth procedures that incorporate both traditional market factors and macro-financial uncertainty. Using a sample of 250 cryptocurrencies from 2014 to 2024, the results show that financial, macroeconomic, and policy uncertainty are consistently priced sources of risk that generate strong and robust premia. These effects remain significant after controlling for equity, commodity, and foreign-exchange exposures, indicating that cryptocurrencies behave as speculative but highly risk-sensitive assets whose valuations depend more on broad uncertainty conditions than on equity-market dynamics. Methodological enhancements, including Shanken corrections, frequency alignment, and crypto-specific controls such as liquidity and mining difficulty, reinforce the robustness of the findings. Overall, the study extends asset-pricing research by demonstrating that uncertainty factors widely used in traditional markets also explain the cross-section of cryptocurrency returns, underscoring the need for investors to incorporate uncertainty risk in allocation decisions and highlighting the sensitivity of crypto markets to macro-financial conditions.