Herding In The Cryptocurrency Space During Times Of Crisis and Controversy

Abstract

This study aims to quantify herding behavior in the cryptocurrency market during three major events: the FTX scandal, the CryptoZoo scandal, and the collapse of the Terra Luna stablecoin. Using the Cross-Sectional Standard Deviation (CSSD) and Cross-Sectional Absolute Deviation (CSAD) metrics, we found evidence of herding during the Luna collapse and the FTX scandal, but not during the CryptoZoo controversy. The results suggest that for herding behavior to manifest, the triggering event or controversy must be widely disseminated, reaching a broad and diverse set of investors, particularly casual investors. In contrast, the limited awareness of the CryptoZoo scandal, primarily confined to NFT-focused investors, appears insufficient to trigger herding.