Is Downside Risk Priced in Cryptocurrency Market

I look at the cryptocurrency market through the prism of standard multi-factor asset-pricing models with particular attention to the downside market risk. The analysis for 1,700 coins reveals that there is a significant heterogeneity in the exposure to the downside market risk, and that a higher downside risk exposure is associated with higher average returns. The extra downside risk is priced with a statistically significant premium in cross-sectional regressions. Adding the downside risk component to the CAPM and the 3-factor model for cryptocurrencies improves the explanatory power of the models significantly. The downside risk is orthogonal to the size and momentum risks and constitutes an important forth component in the multi-factor cryptocurrency pricing model.