Sector Taxonomies For Digital Assets: Correlation Structures, Diversification Benefits and Quality Assessment

With the growth of digital assets and institutional investing in digital assets over the past decade, a need for classification systems for better monitoring becomes essential. In this paper, we provide a quantitative testing and comparison of two digital asset taxonomies: DATS and DACS primarily using return comovement. We find that while DACS captures greater granularity at Level 2 in its Industry Groups for some cases, DATS captures more depth in its Subsectors at Level 1 in some others. Moreover, behaviour of specific sub-groups for both taxonomies are studied in detail over two scenarios: Facebook rebranding to META and the Terra-LUNA Crash