Are Cryptocurrencies Exposed to Traditional Factor Risks?

Cryptocurrencies are attracting much attention, even becoming a priority for many high-net-worth investors. The introduction of the new spot Bitcoin ETFs simplifies access to this asset class, and as cryptos are included in more and more portfolios, industry practitioners look for models that can help assess how big a portion of clients’ portfolios allocate to this new asset class. Factor risk models are an industry standard for understanding other main asset classes, and authors of today’s presented research (Akbari, Ekponon, and Guo, revised 2024) provide useful insights into which factor risks can explain the variation in cryptos returns.

The main takeaway? We can definitely shred the idea that crypto stands on its own, acting independently and in isolation from other financial world vehicles. Overall, these findings provide evidence that well-known factor risks can explain crypto market returns and that a strong link exists between the crypto market and traditional asset classes.

https://quantpedia.com/are-cryptocurrencies-exposed-to-traditional-factor-risks/