Abstract
Cryptocurrencies have attracted extensive attention from individual and institutional investors in recent years. In this emerging and inefficient capital market, the roles that institutional investors play can have a remarkable impact on the market. This paper investigates the ERC-20 token investment market from a network perspective. Using a dataset containing 317 ERC-20 tokens and their institutional investors at the end of June 2020, we construct a co-investment network of tokens connected by the sharing of institutional investors. Specifically, we examine whether the tokens’ market embeddedness, measured by their network structural properties, can influence their market performance, as well as whether the tokens’ structural similarity in the co-investment network can influence similarity of their market performance. Our results indicate that strength centrality, closeness centrality, betweenness centrality, and clustering coefficient have a significant impact on trading volume and liquidity of the market. And there is a significantly positive correlation between the Jaccard similarity index and tokens’ market performance similarity. This work demonstrates the non-negligible influence of the institutional investors and the diffusion of such influence through co-investment relationships in the cryptocurrency market. We expect the analysis could further enhance the understanding of the inefficiency and vulnerability of this emerging market.
Highlights
As the end of 2020, there are more than 7,000 cryptocurrencies in circulation worldwide
This paper investigates the impact of institutional investors’ dispersed investments on the cryptocurrency market, i.e., how the individual ERC-20 tokens’ market performances, e.g., price, volatility, and trading volume, are affected by their sharing of institutional investors
This paper studies the role institutional investors play in the ERC20 token market and how they affect the market performance of tokens, e.g., price, trading volume, market capitalization, liquidity, return, and volatility
Summary
As the end of 2020, there are more than 7,000 cryptocurrencies in circulation worldwide. The total cryptocurrency market value has exceeded 300 billion US dollars, with a daily trading volume topping 200 billion [1]. Only a few hundred of these cryptocurrencies run on their own blockchains, while others reside on Ethereum-like blockchain platforms, which support users to issue smart contract-based cryptocurrencies, known as tokens, following token standards such as ERC-20, ERC-721, and ERC-777. The number of smart contract-based tokens on Ethereum is more than 300,000 as of 2020 [2], though not all are publicly traded in cryptocurrency exchanges. Finding the driving forces of the market is crucial to the understanding of the formation and development of cryptocurrencies’ prices. Buchholz et al [3] claimed that the supply and demand in the market are among the main drivers of the bitcoin price. Wijk [4] emphasized the role of global macroeconomic
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