Blockchain characteristics and cryptocurrency returns

We examine whether blockchain characteristics such as network size and computing power affect cryptocurrency prices and returns. Network size reflects adoption and usage of the blockchain while computing power proxies for the real-world resources expended on securing and confirming transactions. Consistent with theoretical models, we find that cryptocurrency prices exhibit comovement with these two blockchain characteristics. Further, aggregate net-work and computing power explain the variation in expected cryptocurrency returns at least as well as models with return-based factors such as market, size, and momentum. Overall, our results show that blockchain-based factors are important for explaining cryptocurrency prices and returns.