Cross-Sectional Properties of Cryptocurrency Returns

In recent years, cryptocurrencies have attracted significant interest from academics, investors, and regulators alike. Cryptocurrencies, also commonly referred to as “coins,” are peer-to-peer electronic cash systems that enable online payments that are sent directly without the intermediation of financial institutions. Importantly, contrary to many other asset classes, cryptocurrencies have no association with higher authority, are indefinitely divisible, and have no physical representation. Their value depends on the security of an algorithm allowing to trace transactions and not on any tangible assets, firm’s financial standing, or country credibility. The rapid increase in the popularity of coins may result from their unique features: government-free design, peer-to-peer system, and minimal transaction costs.