Uniswap Labs Report: crypto asset price rises since 2023 unrelated to active stock market backdrop

Recently, researchers from Uniswap Labs, Copenhagen Business School, and Circle published a paper titled “A Study of Crypto Asset Price Drivers”. The article uses a structural vector autoregressive model to study the factors that influence cryptocurrency returns. The model uses asset price co-movements to identify the impact of monetary policy and risk sentiment on crypto asset prices in regular markets. Specifically, the researchers decompose daily bitcoin returns into three factors reflecting conventional risk premiums, monetary policy, and crypto-specific shocks. Crypto-specific shocks are further decomposed into changes in crypto risk premiums and crypto adoption levels by utilizing the co-movement of bitcoin and stablecoin market capitalization. The analysis shows that crypto asset prices are significantly influenced by conventional risk and monetary policy factors. Notably, tightening monetary policy accounted for more than two-thirds of the crypto market decline in 2022. In contrast, the compression of the crypto risk premium has been the main driver of cryptocurrency returns since 2023, independently of a vibrant equity market backdrop.