Accounting for Cryptocurrency Value

Abstract

This paper examines the role of the information disclosed on blockchains in the cryptocurrency market. We find that blockchain disclosure on user adoption, measured as the number of new addresses, is highly value-relevant in the cryptocurrency market. Surprises in the disclosed number of new addresses explain 8% of the variation in cryptocurrency returns. The disclosed information is more value-relevant if the quality of the disclosure is higher and the cryptocurrency is larger in size. Unlike traditional markets, we do not find pre- or post-drift around the disclosure of new address information. The presence of strong market reactions at the disclosure and the absence of drifts around it highlight the distinct features of the information environment in this market, and provide a benchmark case where information is disclosed publicly and (almost) continuously. Lastly, we construct the price-to-new address ratios and find that they negatively predict future returns–a cryptocurrency value effect.