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Beneath the Crypto Currents: The Hidden Effect of Crypto “Whales”

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Abstract

Cryptocurrency markets are often characterized by market manipulation or, at the very least, by a sharp distinction between large and sophisticated investors and small retail investors. While traditional assets often see a divergence in the success of institutional traders and retail traders, we find an even more pronounced difference regarding the holders of Ethereum (ETH), the second-largest cryptocurrency by volume. We see a significant difference in how large holders of ETH behave compared with smaller holders of ETH relative to price movements and the volatility of the cryptocurrency. We find that large ETH holders tend to increase their ETH holdings prior to a price increase, while small ETH holders tend to reduce their ETH holdings prior to a price increase. In other words, ETH returns tend to move in the direction that benefits crypto “whales” while reducing returns (or increasing loss) to “minnows.” Additionally, we find that the volatility of ETH returns seems to be driven by small retail investors rather than by the crypto whales.

Suggested Citation

  • Alan Chernoff & Julapa Jagtiani, 2024. "Beneath the Crypto Currents: The Hidden Effect of Crypto “Whales”," Working Papers 24-14, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:98653
    DOI: 10.21799/frbp.wp.2024.14
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    References listed on IDEAS

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    More about this item

    Keywords

    Cryptocurrency; Ethereum; ETH; crypto whales; blockchain; pump-and-dump;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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