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Crypto Pricing with Hidden Factors

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  • Matthew Brigida

Abstract

We estimate risk premia in the cross-section of cryptocurrency returns using the Giglio-Xiu (2021) three-pass approach, allowing for omitted latent factors alongside observed stock-market and crypto-market factors. Using weekly data on a broad universe of large cryptocurrencies, we find that crypto expected returns load on both crypto-specific factors and selected equity-industry factors associated with technology and profitability, consistent with increased integration between crypto and traditional markets. In addition, we study non-tradable state variables capturing investor sentiment (Fear and Greed), speculative rotation (Altcoin Season Index), and security shocks (hacked value scaled by market capitalization), which are new to the literature. Relative to conventional Fama-MacBeth estimates, the latent-factor approach yields materially different premia for key factors, highlighting the importance of controlling for unobserved risks in crypto asset pricing.

Suggested Citation

  • Matthew Brigida, 2026. "Crypto Pricing with Hidden Factors," Papers 2601.07664, arXiv.org.
    • Handle: RePEc:arx:papers:2601.07664
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    References listed on IDEAS

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    1. Brigida, Matthew, 2025. "The surprising irrelevance of total-value-locked on cryptocurrency returns," Economics Letters, Elsevier, vol. 257(C).
    2. Yukun Liu & Aleh Tsyvinski & Xi Wu, 2022. "Common Risk Factors in Cryptocurrency," Journal of Finance, American Finance Association, vol. 77(2), pages 1133-1177, April.
    3. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    4. Matt Brigida, 2025. "The Surprising Irrelevance of Total-Value-Locked on Cryptocurrency Returns," Papers 2506.03287, arXiv.org, revised Jun 2025.
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