Factor Investing in the Cryptocurrency Market: Introducing Cryptocurrency-Specific Factors

This thesis examines whether factor investing generates excessreturns in the cryptocurrency marketand whether the cryptocurrency market has become more efficient, byperforming Fama-MacBeth (1973)and portfolio regressions,in the cross-section, on a dataset from April 2013 to August 2019. An altered methodology is proposed, where the Bitcoin values of cryptocurrencies are used to construct factor portfolios, whereas usually, USD values of cryptocurrencies are used to construct portfolios. Results show significant results for sizeand value, in both the USD and BTC approach. Also,significant results are foundfor a composite factor strategy consisting of size and momentum. Additionally, constructing portfolios according the proposed BTC approach increases cumulative returns in USD. However, future research is neededin this topic, as the used dataset is limitedand the constructed value factor is new.