Cryptocurrency as an Investable Asset Class: Coming of Age
Nicola Borri, Yukun Liu, Aleh Tsyvinski, Xi Wu
TL;DR
This paper applies an asset-pricing framework to cryptocurrencies, arguing that the asset class has reached a mature stage with practical investability. It synthesizes empirical regularities into seven stylized facts, including a comparable risk-adjusted performance to equities, a small set of predictive factors, significant jump risk, the price-determining role of on-chain activity, and the growing influence of regulation and disclosure. Using extensive data from CoinGecko and auxiliary sources, it demonstrates that a few factors (C-3/C-4) explain substantial cross-sectional variation, while nonlinear factors (KA and FS-FMB) capture additional structure in a transparent, interpretable way. The findings highlight that while crypto markets share core characteristics with traditional finance, they are still shaped by network effects, market frictions, and evolving regulatory regimes, underscoring the need for robust data practices and appropriate risk management for investors and policymakers alike.
Abstract
We organize existing empirical regularities of cryptocurrencies into seven stylized facts and analyze cryptocurrencies through the lens of empirical asset pricing. We find important similarities with traditional markets--risk-adjusted performance so far is broadly comparable, and the cross-section of returns can be summarized by a small set of factors. However, cryptocurrency also has its own distinct character: jumps are frequent and large, and blockchain information helps drive prices. This common set of stylized facts provides evidence that cryptocurrency is emerging as an investable asset class. Additionally, we discuss potential data quality issues and possible changes in future regulations and the cryptocurrency environment.