Table 1 contains the regression results for the regression between the daily arithmetic excess returns for

Bitcoin, and
the daily arithmetic excess returns for Crypto Index A (With Bitcoin) done using SPSS. Excess returns are computed
by subtracting the then current (yield of a 10 year treasury note)^(1/365) from the daily arithmetic returns of Bitcoin,
and Crypto Index A (With Bitcoin). The independent variable is the return for Bitcoin (x-axis), and the dependent
variable is the return for Crypto Index A (With Bitcoin). The Adjusted R-squared for the regression is 1.000 which is
significant at the 0.000 level. The intercept is positive 0.001395%, and significant at the 0.037 level, which implies a
likely existence of small alpha for the Bitcoin stand-alone investment as compared to the Crypto Index A (With
Bitcoin). X Variable is 0.999 and significant at the 0.000 level, which means that the Beta coefficient of Bitcoin is
0.999.

Regression

Descriptive Statistics
Mean Std. Deviation N
Bitcoin .001039079 .0398248017 664
Index_w_bitcoin .001026045 .0398600852 664

Model Summary
Std. Error Change Statistics
Mode R Adjusted of the R Square
l R Square R Square Estimate Change F Change df1 df2
1 .
35723144.
1.000a 1.000 1.000 000171566 1.000 1 662
998
1

Model Summary
Change Statistics
Model Sig. F Change Durbin-Watson
1 .000 1.884

ANOVA
Model Sum of Squares df Mean Square F Sig.
1 Regression 1.052 1 1.052 35723144.998 .000b
Residual .000 662 .000
Total 1.052 663

Coefficients
Unstandardized Standardized 95.0% Confidence
Coefficients Coefficients Interval for B
Model B Std. Error Beta t Sig. Lower Bound
1 Intercept 1.395E-5 .000 2.095 .037 .000
X Variable 5976.88
.999 .000 1.000 .000 .999
4
 Bitcoin Characteristic Line
0.30000000

0.20000000
f(x) = x + 0
R² = 1
0.10000000

0.00000000
-0.50000000 -0.40000000 -0.30000000 -0.20000000 -0.10000000 0.00000000 0.10000000 0.20000000 0.30000000
Bitcoin

-0.10000000

-0.20000000

-0.30000000

-0.40000000

-0.50000000

Crypto Index A (With Bitcoin)

Figure 1 is a graph of the data used to compute the Bitcoin Beta against Crypto Index A (with Bitcoin), which is the
characteristic line for Bitcoin. Figure was created in Excel using the Chart function. The independent variable is the
return for Bitcoin (x-axis), and the dependent variable is the return for Crypto Index A (With Bitcoin). The chart
contains the trend line and the R square.

Using the formula for the Beta coefficient, defined as taking the covariance of excess daily arithmetic
excess returns for Bitcoin, and the daily arithmetic excess returns for Crypto Index A (With Bitcoin) computed using
Excel covariance.s function, and dividing it by the variance of the daily arithmetic excess returns for Crypto Index A
(With Bitcoin) computed using Excel var.s function. (Excess returns are computed by subtracting the then current
(yield of a 10 year treasury note)^(1/365) from the daily arithmetic returns of Bitcoin, and Crypto Index A (With
Bitcoin).) This method also confirmed the 0.999 Beta coefficient.
Table 2 contains the regression results for the regression between the daily arithmetic excess returns for Bitcoin, and
the daily arithmetic excess returns for Crypto Index A (Without Bitcoin) done using SPSS. Excess returns are
computed by subtracting the then current (yield of a 10 year treasury note)^(1/365) from the daily arithmetic returns of
Bitcoin, and Crypto Index B (Without Bitcoin). The independent variable is the return for Bitcoin (x-axis), and the
dependent variable is the return for Crypto Index B (Without Bitcoin). The Adjusted R-squared for the regression is
0.756 which is significant at the 0.000 level. The intercept is positive 0.11%, and significant at the 0.17 level, which
fails to Reject the null hypothesis regarding the non-existence of alpha for the Bitcoin stand-alone investment as
compared to the Crypto Index B (Without Bitcoin). X Variable is 0.663 and significant at the 0.000 level, which means
that the Beta coefficient of Bitcoin is 0.663.

Regression

Descriptive Statistics
Mean Std. Deviation N
Bitcoin .001039079 .0398248017 664
Crypto_index_B_Wit
-.000016767 .0522316850 664
hout_Bitcoin

Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 .869a .756 .755 .0197055456

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression .794 1 .794 2045.970 .000b
Residual .257 662 .000
Total 1.052 663

Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 Intercept .001 .001 1.373 .170
X Variable .663 .015 .869 45.232 .000
 Bitcoin Characteristic Line
0.30000000

0.20000000

0.10000000

0.00000000
0 f(x) = −500
0x+0 1000 1500 2000 2500 3000 3500 4000 4500
R² = 0
Bitcoin

-0.10000000

-0.20000000

-0.30000000

-0.40000000

-0.50000000

Crypto Index A (Without Bitcoin)

Figure 2 is a graph of the data used to compute the Bitcoin Beta against Crypto Index B (without Bitcoin), which is the
characteristic line for Bitcoin. Figure was created in Excel using the Chart function. The independent variable is the
return for Bitcoin (x-axis), and the dependent variable is the return for Crypto Index B (Without Bitcoin). The chart
contains the trend line and the R square.

Using the formula for the Beta coefficient, defined as taking the covariance of excess daily arithmetic
excess returns for Bitcoin, and the daily arithmetic excess returns for Crypto Index B (Without Bitcoin) computed using
Excel covariance.s function, and dividing it by the variance of the daily arithmetic excess returns for Crypto Index A
(With Bitcoin) computed using Excel var.s function. (Excess returns are computed by subtracting the then current
(yield of a 10 year treasury note)^(1/365) from the daily arithmetic returns of Bitcoin, and Crypto Index B (Without
Bitcoin).) This method also confirmed the 0.663 Beta coefficient.

Linear Regression Assumptions

A number of assumptions must be adequately met for a linear regression to be the appropriate method of describing
data. These are: linear relationship between variables, independence of residuals, normality of error terms and
homoscedasticity. These assumptions will be tested for the data in question.

1. Linear relationship between regressed variables. This condition is met in both Bitcoin to Crypto Index A (with
Bitcoin) regression, and Bitcoin to Crypto Index B (without Bitcoin) regression. This is confirmed visually in Figure 1
and Figure 2 plots, and visually in partial residual plots made in SPSS below:

Figure 3: Bitcoin and Crypto Index A (with Bitcoin) CAPM partial residual plot

As can be seen from the plot, the residuals data is symmetrically distributed, confirming linearity, but exhibits a strong
positive kurtosis that will be discussed further below.

Figure 4: Bitcoin and Crypto Index B (without Bitcoin) CAPM partial residual plot

As can be seen from the plot, the residuals data is predominantly symmetrically distributed, confirming linearity, but
exhibits a strong kurtosis.

2. Independence of residuals assumption requires the error terms to show no autocorrelation. The regression of Bitcoin
to Crypto Index A (with Bitcoin) is showing a small but significant autocorrelation, and partial autocorrelation at lag 5,
as can be seen in SPSS autocorrelation output below. By using the ARIMA (5,0,0) model to derive an additional lag 5
variable we can improve the model statistically. See the ARIMA model SPSS output below. The E(t-5) variable was
determined as 0.108 and significant to 0.006 level. The regression of Bitcoin to Crypto Index B (without Bitcoin)
showed no significant autocorrelation.

Autocorrelations
Series: Unstandardized Residual
Box-Ljung Statistic
a
Lag Autocorrelation Std. Error Value df Sig.b
1 .057 .039 2.144 1 .143
2 .061 .039 4.592 2 .101
3 .017 .039 4.786 3 .188
4 -.054 .039 6.722 4 .151
5 .102 .039 13.751 5 .017
6 .057 .039 15.913 6 .014
7 .041 .039 17.019 7 .017
8 -.018 .039 17.245 8 .028
9 .007 .038 17.281 9 .044
10 .010 .038 17.344 10 .067
11 .040 .038 18.428 11 .072
12 -.012 .038 18.528 12 .101
13 .053 .038 20.433 13 .085
14 .010 .038 20.499 14 .115
15 -.007 .038 20.532 15 .152
 Partial Autocorrelations
Series: Unstandardized Residual
Partial
Lag Autocorrelation Std. Error
1 .057 .039
2 .058 .039
3 .011 .039
4 -.059 .039
5 .108 .039
6 .053 .039
7 .024 .039
8 -.035 .039
9 .018 .039
10 .007 .039
11 .032 .039
12 -.031 .039
13 .056 .039
14 .006 .039
15 -.010 .039
ARIMA (5,0,0) model for residuals of Bitcoin to Crypto Index A (with Bitcoin) regression

Model Summary
Model Statistics
Model Fit
statistics Ljung-Box Q(18)
Number of Stationary R- Number of
Model Predictors squared Statistics DF Sig. Outliers
Unstandardized
0 .022 8.098 13 .837 0
Residual-Model_1

ARIMA Model Parameters

Estimate SE t Sig.
Unstandardized Unstandardized No Constant 2.435E-8 7.940E-6 .003 .998
Residual- Residual Transformation AR Lag 1 .060 .039 1.548 .122
Model_1 Lag 2 .059 .039 1.512 .131
Lag 3 .007 .039 .191 .848
Lag 4 -.065 .039 -1.680 .094
Lag 5 .108 .039 2.779 .006
 Residual ACF
Model 1 2 3 4 5 6 7 8
ACF -.006 .001 .005 -.007 -.003 .049 .032 -.039
SE .039 .039 .039 .039 .039 .039 .039 .039

Residual ACF
Model 9 10 11 12 13 14 15 16
ACF .019 .003 .035 -.022 .056 .006 -.012 .000
SE .039 .039 .039 .039 .039 .039 .039 .039

Residual ACF
Model 17 18 19 20 21 22 23 24
Unstandardized ACF -.024 -.030 .004 .030 .012 .025 -.004 -.010
Residual-Model_1 SE .039 .039 .039 .039 .039 .039 .039 .039

Residual PACF
Model 1 2 3 4 5 6 7 8
PACF -.006 .001 .005 -.007 -.003 .049 .033 -.039
SE .039 .039 .039 .039 .039 .039 .039 .039

Residual PACF
Model 9 10 11 12 13 14 15 16
PACF .018 .003 .036 -.025 .053 .009 -.010 -.004
SE .039 .039 .039 .039 .039 .039 .039 .039

Residual PACF
Model 17 18 19 20 21 22 23 24
PACF -.026 -.030 .002 .023 .017 .023 -.002 -.009
SE .039 .039 .039 .039 .039 .039 .039 .039

Including a E(t-5) variable, of 0.108 into the CAPM model could improve the model statistically. The Beta formula
would look like ERi=0.001395+Rf+0.999(ERm−Rf+ )+ 0.0108(e)(t-5)+ e

3. The normality of error terms for both Bitcoin to Crypto Index A (with Bitcoin) and Bitcoin to Crypto Index B
(without Bitcoin) was tested with both Shapiro-Wilk, and Kolmogorov-Smirnov tests in SPSS. Both cases show
significant at the 0.000 level non-normality of error terms distribution, due to a high kurtosis, of 4.517, and 3.076. High
kurtosis of bitcoin is well documented, Tan, Chan and Ng (2018), and is likely caused by the speculative nature of most
large scale in-and-outflows of funds.
Bitcoin to Crypto Index A (with Bitcoin):

Descriptives
Statistic Std. Error
Unstandardized Mean .0000000 .00000665
Residual 95% Confidence Lower Bound -.0000131
Interval for Mean Upper Bound .0000131
5% Trimmed Mean -.0000013
Median -.0000001
Variance .000
Std. Deviation .00017144
Minimum -.00072
Maximum .00090
Range .00163
Interquartile Range .00015
Skewness .279 .095
Kurtosis 4.517 .189

Tests of Normality
Kolmogorov-Smirnova Shapiro-Wilk
Statistic df Sig. Statistic df Sig.
Unstandardized
.096 664 .000 .923 664 .000
Residual

Bitcoin to Crypto Index B (without Bitcoin):

Descriptives
Statistic Std. Error
Unstandardized Mean .0000000 .00076415
Residual 95% Confidence Lower Bound -.0015004
Interval for Mean Upper Bound .0015004
5% Trimmed Mean -.0002417
Median .0001828
Variance .000
Std. Deviation .01969068
Minimum -.09226
Maximum .08513
Range .17739
 Interquartile Range .01734
Skewness .235 .095
Kurtosis 3.076 .189

Tests of Normality
Kolmogorov-Smirnova Shapiro-Wilk
Statistic df Sig. Statistic df Sig.
Unstandardized
.086 664 .000 .948 664 .000
Residual

4. Heteroscedasticity was tested on residuals against predicted values by Breusch-Pagan and Koenker test using SPSS.
Both Bitcoin to Crypto Index A (with Bitcoin) regression error terms, and Bitcoin Crypto Index B (without Bitcoin)
showed heteroscedasticity significant to 0.000.

Bitcoin to Crypto Index A (with Bitcoin):

===================================

Breusch-Pagan and Koenker test

===================================

The tests use the residuals from the above OLS

OLS output
b se t sig
constant .993 .098 10.093 .000
PRE_1 6.557 2.472 2.653 .008

R-square
.011

------- ANOVA TABLE --------

SS df MS F Sig
Model 45.213 1.000 45.213 7.037 1.000
Residual 4253.357 662.000 6.425 -999.000 -999.000

------- Breusch-Pagan and Koenker test statistics and sig-values

LM Sig
BP 22.606 .000
 Koenker 6.984 .008

Bitcoin to Crypto Index B (without Bitcoin):

===================================

Breusch-Pagan and Koenker test

===================================

The tests use the residuals from the above OLS

OLS output
b se t sig
constant 1.000 .097 10.352 .000
RES_3 12.403 4.910 2.526 .012

R-square
.010

------- ANOVA TABLE --------

SS df MS F Sig
Model 39.547 1.000 39.547 6.382 .000
Residual 4102.182 662.000 6.197 -999.000 -999.000

------- Breusch-Pagan and Koenker test statistics and sig-values

LM Sig
BP 19.774 .000
Koenker 6.340 .012

Discussion:

Some of the assumptions behind the linear regression method were found to be incompatible with the traditional
CAPM simple linear regression method of comparing the daily arithmetic excess returns for Bitcoin, and the daily
arithmetic excess returns for Crypto Index A (with Bitcoin) and Crypto Index B (without Bitcoin). Namely the fact that
the error terms in both cases were found to be non-normally distributed due to high kurtosis, with autocorrelation
present for the residuals of regression between Bitcoin and Crypto Index A (with Bitcoin), and heteroscedasticity
present in residuals for both models as well. Heteroscedasticity can be explained by the rapid economic regime changes
for cryptocurrencies. For example the recent market volatility due to Covid19 would also show up as heteroscedasticity
in various CAPM models. Autocorrelation was quite small, though significant, and the high kurtosis of error term
distribution is in line with the high kurtosis nature of cryptocurrency price change behavior. So although the models are
imperfect, nonetheless, the sheer significance of the linear regression variables of the CAPM for Bitcoin, regressed
against Crypto Index A (with Bitcoin) and Crypto Index B (without Bitcoin), significant in both cases to the 0.000 level
allows us to conclude (though not precisely determine the Beta of Bitcoin), that Bitcoin exhibits a lower volatility than
other cryptocurrencies in the Crypto Index B. This finding confirms other studies such as, Tan, Chan and Ng (2018),
that bitcoin exhibits a lower volatility than other cryptocurrencies, due to its greater acceptance as a medium of
exchange.

Conclusion

Lower volatility of Bitcoin compared to other cryptocurrencies in the Crypto Index B, is correlated to the difference in
market cap between the different cryptocurrencies. Market cap of cryptocurrencies is proxy for the level of trust that a
cryptocurrency inspires. The fact that Bitcoin, as the biggest cryptocurrency exhibits lower volatility together with a
greater market cap, allows us to suggest that a virtuous cycle may be in place, whereby greater trust, leads to greater
market cap, which in turn leads to lower volatility, which in turn leads to greater trust and acceptance as a medium of
exchange. The medium of exchange as a competitive landscape has always shown a tendency towards winner-takes-all
economics. There’s economic efficiency to be derived from consolidation of mediums of exchange, that is why gold for
instance was so predominant in days past as a medium of exchange, and Euro took the place of multiple currencies in
Europe. Winner-takes-all nature of the medium of exchange implies first of all that bitcoin is the most likely candidate
to become that winner that takes all, as a cryptocurrency. And that if a virtuous cycle is in place, we are likely to see
greater and greater market cap, lower and lower volatility, and a greater trust towards bitcoin.