I want to analize Bitcoin returns using the CAPM. I was thinking if it makes sense to compare returns of (BTC/USD) against (EUR/USD), taking the latter as the market returns.

However, since EUR is just a fraction of the foreign exchange market, I'm not sure if this makes much sense.

Is this analysis reasonable?

  • $\begingroup$ It could be a good approximation... Since EUR/USD is much more liquid than bitcoin... Undoubtedly you can try and see what happens! $\endgroup$
    – james42
    Jun 4, 2015 at 17:16

1 Answer 1


The CAPM model is based on the relationship existing between an asset and its benchmark market; assuming that the bitcoin could be thought as a currency, according to me, you should take the mean of returns over all the currencies traded and then regress the BTCUSD on the the average currency market returns.

Indeed, although the EURUSD is one of the most liquid and traded currencies, in my humble opinion, it should not be considered as a benchmark of the currency market. Anyway, in this case too you are only approximating the market portfolio, as Roll (1977) suggests.

Maybe you could find pretty interesting the Roll's critique about constructing a market portfolio and testing the CAPM model; here below you can find the paper citation:

Roll, Richard (March 1977), "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory", Journal of Financial Economics 4 (2): 129–176

Hope this will help.


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