Are Cryptocurrencies Homogenous?

Abstract

This article investigates if the returns of cryptocurrencies are affected in similar ways by a selection of demand and supply-side determinants. These determinants include both economic determinants, such as macroeconomic factors and uncertainty, and technical determinants, such as token supply, distribution and transaction validation. Homogeneity among cryptocurrencies is tested via a LASSO-model in which the determinants of returns that have been identified in research on Bitcoin are applied to a sample of 12 cryptocurrencies. The analysis goes beyond much existing research by simultaneously covering different time periods and design choices of cryptocurrencies.

The results show that cryptocurrencies are heterogenous, apart from some similarities in the impact of technical determinants. The cryptocurrency market is highly integrated with evidence of substitution effects. Further, design choices related to demand and supply among cryptocurrencies often explain the impact of determinants of return. It is important to consider heterogeneity among cryptocurrencies in order to enlighten the ongoing debates about the social contribution, economic advantages and risks, and potential regulation of cryptocurrencies.

Keywords: cryptocurrencies, decentralized virtual currencies, LASSO, homogeneity, heterogeneity, Bitcoin

JEL Classification: G15, E41