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

Author

Listed:
  • Keith Hazen

    (Federal Reserve Bank of Philadelphia and Rutgers University)

  • Julapa Jagtiani

    (Federal Reserve Bank of Philadelphia)

  • Loretta J. Mester

    (Wharton School of Business, University of Pennsylvania and Griswold Center for Economic Policy Studies, Princeton University)

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.

Suggested Citation

  • Keith Hazen & Julapa Jagtiani & Loretta J. Mester, 2026. "How Do Large, Sophisticated Cryptocurrency Trades Impact Broader DeFi Market Dynamics?," Working Papers 358, Princeton University, Department of Economics, Center for Economic Policy Studies..
    • Handle: RePEc:pri:cepsud:358
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    File URL: https://gceps.princeton.edu/wp-content/uploads/2026/09/wp358_Hazen-Jagtiani-Mester_CryptoWhales.pdf
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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