Abstract
We find that the three risk factors of Liu et al. (2022) capture only one-third of the variation in cryptocurrency excess returns. The remaining variation is mostly driven by a single common component that lies outside the three factor model framework. Although we cannot explain this fully using a large set of 135 global macroeconomic and financial variables as candidate proxies, the unknown common component seems to be associated with the value of fiat money. The role of the common component in cryptocurrency valuation becomes more dominant during monetary easing than during tightening periods.
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