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Do Fundamentals Drive Cryptocurrency Prices?

Author

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  • Bhambhwani, Siddharth
  • Delikouras, Stefanos
  • Korniotis, George

Abstract

We test the theoretical prediction that blockchain trustworthiness and transaction benefits determine cryptocurrency prices. We measure these two fundamentals with blockchain computing power (i.e., hashrate) and network size, respectively, and find a significant long-run relationship between these blockchain characteristics and the prices of five prominent cryptocurrencies. We also document that the returns of the five cryptocurrencies are exposed to fundamental-based risk factors related to computing power and network size, even after controlling for Bitcoin returns and cryptocurrency momentum. In out-of-sample tests, the computing power and network factors can explain the return variation of a broad set of cryptocurrencies.

Suggested Citation

  • Bhambhwani, Siddharth & Delikouras, Stefanos & Korniotis, George, 2019. "Do Fundamentals Drive Cryptocurrency Prices?," CEPR Discussion Papers 13724, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13724
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset Pricing Factors; Bitcoin; cointegration; Computing Power; Dash; ethereum; Hashrate; Litecoin; Monero; network;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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