Bitcoin splitting showing gold and internet cables.

Crypto Investing in 2024: Separating Speculation from Fundamentals

Kai Mendoza in Business & Economy December 2025 • 4 min read.

"A fresh look at crypto asset pricing reveals how to make informed investment decisions."

The cryptocurrency market has evolved from a niche interest to a significant asset class, capturing the attention of investors worldwide. With thousands of crypto assets now available, understanding the drivers of crypto asset returns is more crucial than ever. Recent research sheds light on the empirical facts that define this asset class and explores the factors influencing crypto asset pricing.

A new study motivates the examination of the crypto asset class with eleven compelling empirical observations. These facts support the argument that crypto assets represent a novel, attractive, and independent asset class, challenging conventional financial paradigms. By examining sixty-three asset characteristics, the research uncovers rich signal content across various characteristics and future horizons.

This analysis emphasizes the importance of distinguishing between speculatively driven returns and those based on more fundamental pricing factors. As the crypto market matures, a clearer understanding of these dynamics becomes essential for making informed investment decisions and navigating the inherent volatility.

What Makes Crypto a Unique Asset Class?

Bitcoin splitting showing gold and internet cables.

Cryptocurrencies have introduced a unique mechanism known as Proof-of-Work, enabling consensus among adversarial entities using cryptography. This innovation has paved the way for censorship-resistant digital transaction ledgers, offering a permissionless payment network for transferring digital assets. The emergence of Nakamoto Consensus and other blockchain-based mechanisms has facilitated the scarcity of digital information, creating a new area of economic research.

The ascent of Bitcoin sparked a Cambrian explosion of other crypto assets, transforming the landscape from mere collectibles to a trillion-dollar asset class. Bitcoin has matured into a substantial payment network, processing hundreds of billions of dollars annually, with most transactions costing less than one dollar. This offers monetary functions with distributed consensus, a feature previously unseen in traditional finance.

Superior Risk-Adjusted Returns: Over the study period from 2018-2022, Bitcoin exhibited superior risk-adjusted returns compared to traditional asset classes.
Independence: Bitcoin shows lower correlations with the Nasdaq and S&P500, standing at 0.23 and 0.21 respectively, compared to gold's correlations of 0.26 and 0.28.
Diversification Gains: Shifting from a 100% Nasdaq portfolio to a mix of 60% Nasdaq and 40% crypto assets could yield a Sharpe Ratio gain of 0.53 (from 0.43 to 0.96).

One of the fundamentally unique aspects of the crypto asset class is its open state. The state of the digital ledger is readable, referred to as onchain data. This allows direct observation of the hodling time of Bitcoin wallets, revealing that most wallets use Bitcoin as a store of value rather than for speculative trading. This transparency provides a level of insight not available in traditional markets.

The Future of Crypto Asset Pricing

As the crypto market continues to mature, understanding its unique characteristics and pricing dynamics becomes increasingly important. By distinguishing between speculatively driven returns and those grounded in fundamental factors, investors can make more informed decisions and navigate the inherent volatility of this emerging asset class. The insights provided by recent research pave the way for a more nuanced approach to crypto investing, emphasizing the need for robust analysis and a clear understanding of market fundamentals.

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2405.15716,

Title: Empirical Crypto Asset Pricing

Subject: econ.em

Authors: Adam Baybutt

Published: 24-05-2024

Everything You Need To Know

What are the key empirical observations that define the crypto asset class, according to recent research?

Recent research highlights eleven empirical observations that support the notion of crypto assets as a novel and independent asset class. These observations are derived from analyzing sixty-three asset characteristics, revealing rich signal content. This analysis emphasizes distinguishing between speculative trends and fundamental value within the crypto market, providing insights for informed investment decisions. The study supports the argument that crypto assets represent a novel, attractive, and independent asset class, challenging conventional financial paradigms.

How does Bitcoin's performance compare to traditional asset classes in terms of risk-adjusted returns and diversification benefits?

Bitcoin demonstrated superior risk-adjusted returns compared to traditional asset classes over the 2018-2022 study period. Moreover, Bitcoin exhibits lower correlations with traditional assets like the Nasdaq and S&P 500, with correlations of 0.23 and 0.21, respectively, providing diversification benefits. This contrasts with gold, which had correlations of 0.26 and 0.28 with the same indexes. A shift from a 100% Nasdaq portfolio to a 60% Nasdaq and 40% crypto asset mix could yield a significant Sharpe Ratio gain, from 0.43 to 0.96, showcasing the potential for enhanced portfolio performance.

What is the significance of onchain data in understanding crypto asset pricing and market dynamics?

Onchain data, the readable state of the digital ledger, provides unique insights not available in traditional markets. By directly observing data like the hodling time of Bitcoin wallets, investors can understand how Bitcoin is used as a store of value rather than just for speculative trading. This transparency enables a deeper understanding of market fundamentals and helps distinguish between speculatively driven returns and those based on more fundamental pricing factors.

In what ways has the crypto market evolved, and what implications does this have for investors?

The cryptocurrency market has evolved from a niche interest to a significant asset class. The emergence of mechanisms like Proof-of-Work and Nakamoto Consensus has led to the creation of censorship-resistant digital transaction ledgers, and the scarcity of digital information. The market now includes thousands of crypto assets. This evolution requires investors to understand the drivers of crypto asset returns, distinguish between speculation and fundamental value, and make informed investment decisions in a volatile environment. The transparency offered by onchain data enables a deeper understanding of market fundamentals and investor behavior.

What are the fundamental innovations introduced by cryptocurrencies that set them apart from traditional financial systems?

Cryptocurrencies have introduced several fundamental innovations. Proof-of-Work enables consensus among adversarial entities using cryptography, leading to censorship-resistant digital transaction ledgers. This mechanism facilitates the permissionless transfer of digital assets. The development of Nakamoto Consensus and other blockchain-based mechanisms has enabled the scarcity of digital information, leading to a new area of economic research. These features have allowed Bitcoin to mature into a substantial payment network, processing hundreds of billions of dollars annually, offering monetary functions with distributed consensus, a feature previously unseen in traditional finance.