Sectoral Dynamics and Investment Strategies by Factors in the Cryptocurrency Market

This study demonstrates that it is possible to achieve sustained excess returns in the cryptocurrency market by constructing portfolios of cryptocurrencies. To this end, 126 cryptocurrencies were divided into the blockchain and DeFi sectors, and long-only or long/short portfolios were constructed based on strategies such as price momentum, price-to-sales ratio, and revenue growth, with market capitalization or fixed weightings applied in each sector. The risk-adjusted relative returns of each portfolio were derived against the S&P 500. The results showed that the blockchain sector exhibited significant excess returns against the S&P 500 and risk-free rates across all factors in long-only portfolios, while in the DeFi sector, portfolios performance is not robust as in the blockchain sector. The findings of this study suggest the necessity of setting investment strategies that take into account the unique characteristics of each cryptocurrency sector.