Download
Abstract
This paper examines whether text-based measures of blockchain fundamentals are priced in the cross-section of cryptocurrency returns. Using BERT topic modeling, we construct a Fundamental Sentiment Index (FSI) that captures shocks to the net transactional benefits of holding cryptocurrency. Cryptocurrencies with higher exposure to fundamental sentiment, typically payment and platform tokens, earn higher expected returns, while governance tokens are less exposed. These exposures are strongly related to network-based value measures, including user, transaction, and address activity. A long–short factor based on FSI betas delivers economically large returns and remains significant after controlling for standard cryptocurrency risk factors and value-based models. Overall, fundamental sentiment captures a distinct priced source of risk in cryptocurrency markets.