Graduation Year

2023

Date of Submission

12-2022

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Ricardo Fernholz

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Terms of Use for work posted in Scholarship@Claremont.

Abstract

This paper aims to extend the use of traditional financial metrics into the cryptocurrency space. I calculate and analyze beta coefficients of the three most popular cryptocurrencies by market capitalization at the time of research (Bitcoin, Ethereum, and XRP) using traditional equity markets as benchmarks (S&P 500 and NASDAQ). Previous research finds that cryptocurrencies have previously been suitable tools for diversification, as their returns have been rather unrelated to traditional markets. However, more recent research finds cryptocurrencies to be increasingly related to traditional markets. I find that this trend continues in most recent time (November 2021– September 2022). My results are consistent with previous research that show unrelated returns with traditional markets in the time before 2019. I also find that beta coefficients peak during the Covid-19 market booms. In most recent time, beta coefficients slightly decrease, however not significantly, and remain relatively high despite market crashes for both cryptocurrencies and traditional stocks. I find extremely high and increasing betas for cryptocurrencies using Bitcoin as a benchmark as well. Overall, the findings have important implications for modern investors to consider, That is, currently, major cryptocurrencies are not as suitable diversification tools as they once were, and the returns of smaller coins are very much explained by the movement of the largest coin, Bitcoin.

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