Goodbye to ‘Random Walks’: How CF Benchmarks built a robust Factor Model for Digital Assets

Recorded 17 January 2025.The potential for factor-based investing to one day be applied to digital assets, has long been a tantalizing prospect.But it’s not been possible - till now.CF Benchmarks’ recent report - ‘A Factor Model for Digital Assets’ - demonstrated the existence of ‘classic’ asset market behaviour patterns (factors), like Momentum, Liquidity, Value and others, within the crypto asset class, beyond any reasonable doubt.For the clearest possible exploration of the research, the CFB Talks Digital Assets team were stoked to welcome CF Benchmarks quant and product manager Cristian Isac, back to the podcast.Listen in to 5x your understanding of Crypto Factors.Key points include....The quickening pace of institutional participation, and why it means the time for a digital asset factor model is nowHow classic models like CAPM and Fama-French were adapted for use on crypto’s unique dynamicsSurmounting the data quality challenge: observations across rebalances, universes, and monetary regimesImpressive results; e.g.: Size - risk premium: ~9% annualised; Sharpe: 0.5; Growth - risk premium: ~25% annualised; Sharpe: ~ 1.5All in all, this episode should be essential listening for quants, portfolio managers, and investment professionals in general; anyone, in fact, serious about the evolution of digital asset investing.