An adoption model of cryptocurrencies

Khaladdin Rzayev, Athanasios Sakkas and Andrew Urquhart

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The network effect, measured by users’ adoption, is considered an important driver of cryptocurrency market dynamics. This study examines the role of adoption timing in cryptocurrency markets by decomposing total adoption into two components: innovators (early adopters) and imitators (late adopters). We find that the innovators’ component is the primary driver of the association between user adoption and cryptocurrency returns, both in-sample and out-of-sample. Next, we show that innovators’ adoption improves price efficiency, while imitators’ adoption contributes to noisier prices. Furthermore, we demonstrate that the adoption model captures significant cryptocurrency market phenomena, such as herding behaviour, more effectively, making it better suited for forecasting models in cryptocurrency pricing. These results suggest that our methodology for linking early and late adopters to market dynamics can be applied to various domains, offering a framework for future research at the intersection of operational research and financial markets.

Keywords: cryptocurrency adoption; imitators; innovators; market quality; network effects; predictive modelling (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2025-05-16
New Economics Papers: this item is included in nep-fdg and nep-pay
References: Add references at CitEc
Citations:

Published in European Journal of Operational Research, 16, May, 2025, 323(1), pp. 253-266. ISSN: 0377-2217

Downloads: (external link)
http://eprints.lse.ac.uk/126508/ Open access version. (application/pdf)

Related works:
Journal Article: An adoption model of cryptocurrencies (2025)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:126508

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().