Abstract
We evaluate the ability of futures market participants’ trading behavior decisions to predict cryptocurrency returns. We establish that cryptocurrency returns are driven and predicted by the trading behavior of speculative retail traders. We document that the net-short trading behavior of speculative retail traders is an economically strong and statistically significant determinant of cryptocurrency returns. Further, our findings indicate that changes in the net-short trading behavior remained strong even after controlling for other known predictors such as investor attention, crypto market uncertainty, sentiment, and prior returns.
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