It has been known since at least the groundbreaking work of Fama and French (1992) that there are specific attributes, so called factors, that can help predict the returns of individual assets above the return of the broader market. Since these predictive characteristics arise out of sample (with currently observable factor values predicting future returns), investors can earn excess returns with portfolios that are constructed to align with the factors. First introduced in the cross section of returns and focusing on individual equity securities, the efficacy of such factors has since been demonstrated at the asset class level as well, and found to work not only in the cross section but also longitudinally (for individual assets, through time). Factors like value, momentum, and carry have been found to work so broadly across different asset classes, security universes, countries, and time periods, that Asness et al. simply titled their influential 2013 Journal of Finance paper “Value and Momentum Everywhere”. Our paper provides a first application of momentum, value, and carry based factor investing to the cryptocurrencies. We show that these same factors are effective in this relatively new and unexplored asset class, permitting the construction of portfolios that can earn excess returns over the cryptocurrency “market” as a whole.

Keywords: bitcoin, blockchain, cryptocurrency, factor, momentum, carry, value, investing, portfolio

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