Are Cryptocurrency Prices in Line with Fundamental Assets?

Melanie Cao () and Andy Hou
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Melanie Cao: Schulich School of Business, York University, 4700 Keele Street, Toronto, ON M3J 1P3, Canada
Andy Hou: Trade Floor Risk Management, Scotiabank, 40 Temperance Street, 9th Floor, Toronto, ON M5H 0B4, Canada

JRFM, 2025, vol. 18, issue 11, 1-23

Abstract: This paper presents the first rigorous empirical investigation into a fundamental question of cryptocurrency valuation: Are cryptocurrency prices in line with the prices of fundamental assets? To answer this, we analyze the nine largest cryptocurrencies by market capitalization—Bitcoin (BTC), Ethereum (ETH), Solana (SOL), Binance Coin (BNB), Ripple (XRP), Cardano (ADA), Litecoin (LTC), Tron (TRX), and the stablecoin DAI—against a suite of traditional benchmarks, including major fiat currencies (EUR, CAD, JPY), gold, and the S&P500 index. Our dataset spans from 1 January 2014 to 30 June 2025, with start dates varying for newer cryptocurrencies to ensure robust time series analysis. Guided by the asset pricing theory, we formulate a martingale test: if a cryptocurrency is priced in line with a fundamental numeraire asset, its price ratio relative to that numeraire must follow a martingale process. Our extensive empirical analysis reveals that the prices of major cryptocurrencies (BTC, ETH, SOL, BNB) consistently reject the martingale hypothesis when traditional assets (currencies, gold, equities) serve as the numeraire, indicating a decoupling from fundamental valuation anchors. Conversely, when Bitcoin or Ethereum itself is used as the numeraire, most smaller cryptocurrencies are priced in line with these crypto benchmarks, suggesting an internal valuation ecosystem that operates independently of traditional finance.

Keywords: cryptocurrency; traditional currency; gold; S&P500; asset price ratio; martingale (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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