Blockchain factors

Abstract

Identifying factors to explain cryptocurrency returns is challenging given the lack of fundamental information, however there exists a plethora of data from public blockchains. We use these on-chain data with the recent methodology of Harvey and Liu (2021) and show that a parsimonious two-factor model comprised of the value-weighted cryptocurrency market factor and the network distribution factor can explain the cross-section of individual cryptocurrency returns. • Identifying factors to explain cryptocurrency returns is challenging. • We use these on-chain data to study their predictive power. • We show that a parsimonious two-factor model including one on-chain factor explains returns.