Cryptocurrencies and momentum

A three-factor pricing model for cryptocurrencies

“…This subsection is to determine the formation and holding period. Following Grobys and Sapkota (2019) who document the significantly negative momentum payoffs in the short term, we further examine the predicted momentum returns in the week-frequency by forming the J-K portfolios based on the prior J weeks' performance with the breakpoints of the top decile (called losers) and bottom decile (called winners), which is ranked in ascending order (consistent with Jegadeesh and Titman 1993). The formation and holding periods are set to 1, 2, 3 and 4 weeks, totally 16 strategies.…”

“…However on the basis of rejection of the EMH, what risk factors can help explain cryptocurrency returns? A recent paper by Grobys and Sapkota (2019) shows that the momentum strategy, which has been shown to have strong predictive power in traditional financial markets, implemented on 143 cryptocurrencies generates significantly negative payoffs in the short term, indicating that the digital currency market is free from the persistent momentum effect found across the different financial assets markets. In addition, empirical evidence demonstrates that Altcoins 1 , typically with smaller market capitalization, generate larger profits than Bitcoin does.…”

The Cost of Bitcoin Mining Has Never Really Increased

“…Bitcoin is a digital currency launched in 2009 by an anonymous inventor or group of inventors under the alias of Satoshi Nakamoto (Nakamoto, 2019). It is the largest cryptocurrency in market capitalization with over 100 billion dollars (Chan et al, 2019;Grobys and Sapkota, 2019;Blockchain.com, 2020). As a decentralized currency, Bitcoin differs from government regulated fiat currencies in that there exists no central authority within the network to verify transactions and prevent frauds and attacks (Sin and Wang, 2017).…”

One Cryptocurrency to Explain Them All? Understanding the Importance of Bitcoin in Cryptocurrency Returns

“…It is most likely related to maturation of the cryptocurrency market. Urquhart (2016) suggested that bitcoin was already moving towards an efficient market, while Grobys and Sapkota (2019) form the opinion that the cryptocurrency market is now far more efficient than previously thought. This is aided by the increased attention of institutional investors, the launch of bitcoin futures and greater regulatory surveillance.…”

“…The earliest studies in this nascent field suggested the presence of inefficiency (Urquhart, 2016) and predictable patterns (Phillip et al , 2018) in cryptocurrency markets. More recently, market maturation has led to greater efficiency (Vidal‐Tomas & Ibanez, 2018; Grobys & Sapkota, 2019) that is at least partly driven by liquidity (Wei, 2018; Kochling et al , 2019) and size (Brauneis & Mestel, 2018). The literature has also offered evidence that cryptocurrency returns are uncorrelated with traditional asset classes (Baur et al , 2018; Corbet et al , 2018) and potentially offer attractive diversification benefits (e.g.…”