Does size matter in the cryptocurrency market?

ABSTRACT

This paper examines the size effect in the cryptocurrency market with a sample of more than 1800 cryptocurrencies over the period from January 2014 to May 2019. We find that cryptocurrencies with small market value tend to perform better in the future, which challenges the Efficient Market Hypothesis. The size effect is stable over the sample period and robust to the sample size. The prior returns and liquidity also have an impact on the size effect. In addition, our findings provide practical implications for cryptocurrency investors.

KEYWORDS:

• Size effect
• cryptocurrency
• asset pricing
• liquidity
• anomalies

JEL CLASSIFICATION:

• G12
• G14
• G15

Acknowledgments

We wish to thank Mark Taylor (the editor) and two anonymous reviewers for their valuable comments on the earlier version. Any errors are ours.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Altcoins are alternative cryptocurrencies excluding Bitcoin, each of which has smaller market value than Bitcoin does.

² For more information on cryptocurrency portfolio construction, please visit https://masterthecrypto.com/bitcoin-vs-alt-coins-returns-comparison-gains-bitcoin-altcoins/(accessed: June 25^th, 2019).

³ We remove some cryptocurrencies whose market value is not available from coinmarketcap.com, leaving 1803 coins.

⁴ Like Platanakis, Sutcliffe, and Urquhart (2018) and Platanakis and Urquhart (2019), we utilize weekly cryptocurrency data to construct portfolios since there are not enough monthly data to conduct this analysis.

⁵ Since there is no ‘market return’ in the cryptocurrency market, we need to synthesize a market index and then use its return as the market return.

⁶ The maximum of 9.4766 occurs in the week of 8 July 2018 when ERC20 increases from $0.000118 to $1.54 and the minimum of −9.0134 is in the week of 28 August 2016 when Xaurum (XAUR) decreases from $697.7 to $0.08496.

⁷ Again, we thank the referee for suggesting this additional analysis.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71532009,71790590,71790594].