Blockchain without Crypto? The Impact of On-Chain Data Growth on Firm Fundamentals and Stock Returns
(jointly with Ran Chang)
Abstract: Despite the explosive growth of cryptocurrencies and decentralized finance, whether the underlying technology adds significant value and will thus sustain broad adoption remains unclear. In this presentation, I will briefly summarize what we know about the economics of blockchains and crypto-tokens, before focusing on Chang and Cong (2022), in which we conduct the first large-sample study linking blockchains to firm fundamentals and asset valuation in a country where cryptocurrencies are completely banned. Using proprietary data on firm-level blockchain records from 2015 to 2021, we find that year-on-year quarterly blockchain data growth (BDG) contains value-relevant information for nowcasting and forecasting assets growth, sales growth, ROA, standardized unexpected earnings (SUE), and innovation outcomes measured through patents. BDG also predicts stock returns, especially around future earnings announcements, with a long-short BDG-sorted portfolio generating a 10.56% risk-adjusted return annually. The findings are robust across industries and regions, superior compared to other nowcasters, and hold in international samples. We further discuss the underlying economic channels (e.g., continuous disclosure and reduction in information asymmetry) and provide evidence for causality which are consistent with real-life use cases and heterogeneity analyses that reveal firms with greater information asymmetry, lower disclosure quality, and less public trust benefit more from blockchain adoption and on-chain data growth.
Lin William Cong is the Rudd Family Professor of Management and Associate Professor of Finance at the Johnson Graduate School of Management at Cornell University, where he is the founding faculty director for the FinTech Initiative. He is also a Kauffman Foundation Junior Faculty Fellow, Poets & Quants World Best Business School Professor, and editorial board member for top business and finance journals such as the Management Science. Prior to joining Cornell, he was an assistant professor of Finance at the University of Chicago Booth School of Business where he created courses on “Quantimental Investment,” faculty member at the Center for East Asian Studies, doctoral fellow at the Stanford Institute for Innovation in Developing Economies, and George Shultz Scholar at the Stanford Institute for Economic Policy Research. He advised companies such as String Lab/Dfinity and DataYes and was consulted for the SEC's lawsuits against Telegram/TON and Kik/KIN. He is currently advising ChainLink, Blackrock, Modular Asset Management, among other industry leaders in FinTech and asset management.
Professor Cong’s research spans financial economics, information economics, FinTech and AI, and Entrepreneurship (theory and intersection with digitization and development). Widely recognized as a founding scholar for FinTech research, Professor Cong has received numerous accolades such as the AAM-CAMRI-CFA Institute Prize in Asset Management, the CME Best paper Award, Finance Theory Group Best Paper Award, and has also been invited to speak or teach at hundreds of world-renowned universities, venture funds, investment and trading shops, and government agencies such as IMF, Asset Management Association of China, Alibaba, SEC, and federal reserve banks. He received his Ph.D. in Finance and MS in Statistics from Stanford University, and A.M. in Physics jointly with A.B. in Math and Physics from Harvard University.