Abstract
Despite frequent Blockchain splits stemming from Bitcoin, few studies have examined the determinants of Bitcoin fork returns. In this paper, we investigate the relationships between the returns of Bitcoin forks and a range of common risk factors, including Bitcoin, currency, network and equity-based factors. From a statistical perspective, we find consistent and significant associations between fork returns, their Bitcoin counterparts, and equity markets. Other common factors, such as the equity small-minus-big factor and changes in the Japanese Yen, are found to have occasional links with fork returns. From an economic perspective, Bitcoin returns are the predominant driver of fork returns, accounting for essentially all of the explained variation. These findings are confirmed using orthogonalised common factors and with an alternative methodology, quantile regression. This research broadens our understanding of Bitcoin forks, indicating that a change in blockchain protocol is insufficient to sever links with the Bitcoin parent.
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