Social Features and Cryptocurrency Returns
Posted: 2 Feb 2021 Last revised: 25 Mar 2021
Date Written: November 30, 2020
Abstract
Similarly, to private corporations, the activity of cryptocurrencies has externalities that affect stakeholders. While environmental concerns of the mining protocol and governance issues related to market regulation have been heavily expressed, social dimensions are also crucial for users and miners. This study examines the predictive relationship between social sustainability and cryptocurrency returns. We break down the social pillar into three metrics: (1) miners' incentive, (2) community inclusion and (3) user privacy. Using a sample of twenty major cryptocurrencies between 2015 and 2020, we rank cryptocurrencies on their social features and form portfolios. The derived returns are analyzed using a extended version of the simple three-factor pricing model for cryptocurrencies. The results show that privacy is penalized by the market whereas inclusion and miners' wage premiums are irrelevant to coins' valuation or unaccounted for by market participants.
Keywords: Cryptocurrencies; Sustainability; Inclusion; Privacy; Miners Incentive; Risk Premium
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