Loaded for bear: Bitcoin private wallets, exchange reserves and prices

This study highlights a special feature of cryptocurrency trading and offers information about investor behavior that cannot be observed in traditional financial markets. We find that investors prefer holding bitcoin off exchanges in private wallets and primarily use exchanges to trade. Consequently...

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Bibliographic Details
Published in:Journal of banking & finance 2022-11, Vol.144, p.106622, Article 106622
Main Authors: Hoang, Lai T., Baur, Dirk G.
Format: Article
Language:English
Subjects:
Bitcoin
Blockchain
Exchange reserves
Off-chain transactions
On-chain transactions
Price pressure
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Summary:This study highlights a special feature of cryptocurrency trading and offers information about investor behavior that cannot be observed in traditional financial markets. We find that investors prefer holding bitcoin off exchanges in private wallets and primarily use exchanges to trade. Consequently, bitcoin exchange reserve changes resulting from the movement of bitcoin between private wallets and exchange accounts are negatively related to contemporaneous and future bitcoin returns. Specifically, the transfer of bitcoin on exchanges implies increased selling pressure and the transfer off exchanges implies decreased selling pressure. In turn, flows onto exchanges are triggered by large negative shocks and increased volatility.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2022.106622