Recently, researchers from Uniswap Labs, Copenhagen Business School, and Circle published a paper titled "A Study of the Drivers of Crypto Asset Prices." The paper uses a structural vector autoregression model to study the factors that affect cryptocurrency returns.
The model uses asset price co-movements to identify the impact of monetary policy and risk sentiment in conventional markets on crypto asset prices. Specifically, the researchers decompose daily Bitcoin returns into three factors reflecting conventional risk premiums, monetary policy, and crypto-specific shocks. By leveraging the co-movement of Bitcoin and stablecoin market capitalizations, the shocks to specific cryptocurrencies are further decomposed into changes in crypto risk premiums and cryptocurrency adoption levels.
The analysis shows that crypto asset prices are significantly affected by conventional risk and monetary policy factors. Notably, tight monetary policy factors accounted for more than two-thirds of the crypto market decline in 2022. In contrast, since 2023, the compression of crypto risk premiums has been the main driver of cryptocurrency returns, regardless of the active stock market background. #pepe