Adapting a Famous Quant Value Strategy to Crypto Assets: Some New Ideas About Value Indicators for Crypto

Value indicators are one of the cornerstones of quantitative(quant) trading. Even today, in the mist of the golden era of quant investing, most strategies were based on variations of three fundamental indicators: value, size and momentum. In the case of crypto-assets, value indicators are entirely clear as there is no established methodology to evaluate the value of this new asset class. What it is clear, however, is that establishing some notion of value indicators is foundational to assessing the potential of crypto assets. Years ago, Wall Street legend James O’Shaughnessy proposed one of the most famous quant value strategies of all time. Today, I would like to revisit some of those ideas in the context of crypto assets.

The traditional notion of value indicator relies on metrics like price-to-earnings ratio, free cash flow or debt-to-equity ratio that have no obvious equivalent in the crypto space. However, that’s not necessarily a bad thing and just another sign that crypto requires a new set of value indicators powered by the elements that make crypto a unique asset class. Just like momentum, value indicators are essential establishing any meaningful quantitative strategy in the crypto space. To evaluate the potential of this type of strategies, let’s look at…