How Do Large, Sophisticated Cryptocurrency Trades Impact Broader DeFi Market Dynamics?

Keith Hazen, Julapa Jagtiani and Loretta Mester
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Keith Hazen: Federal Reserve Bank of Philadelphia and Rutgers University
Julapa Jagtiani: Federal Reserve Bank of Philadelphia
Loretta Mester: Wharton School of Business, University of Pennsylvania and Griswold Center for Economic Policy Studies, Princeton University

Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies.

Abstract: Using transaction-level data for Bitcoin (BTC), Ethereum (ETH), and Wrapped Bitcoin (WBTC) matched to public “Whale Alert†signals, we examine how large-scale cryptocurrency trades shape market microstructure. Specifically, we test whether whale transactions alter the composition of active non-whale participants, trigger leader-follower herd behavior, and elevate short-term return volatility. We document a stark divergence between networks: Whale alerts heavily reshape (native) BTC participation by mobilizing previously inactive retail and institutional investors, whereas ETH and WBTC participant profiles remain highly stable on the Ethereum platform. Furthermore, non-whale investors exhibit strong leader-follower behavior in the BTC market — buying and selling in tandem with whale direction. This pattern is largely absent in the Ethereum ecosystem, except among the largest non-whale tranches. These behavioral dynamics directly mirror market stability: Whale alerts induce a brief 24-hour spike in BTC volatility (most acutely following WBTC alerts) but coincide with compressed volatility on the Ethereum platform. Additionally, these asymmetric market responses persisted across Ethereum’s transition from proof-of-work to proof-of-stake. These findings indicate persistent informational and structural asymmetries between large and small digital-asset investors.

Keywords: Cryptocurrency; Ethereum; ETH; Bitcoin; WBTC; crypto whales; DeFi (search for similar items in EconPapers)
JEL-codes: G14 G23 G28 G41 (search for similar items in EconPapers)
Date: 2026-09
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