An Experimental Study of Cryptocurrency Market Dynamics
This research addresses the problem of market volatility and design impacts for cryptocurrency traders and exchanges, though it is incremental in applying experimental methods to this domain.
The study investigated how peer influence affects cryptocurrency market dynamics by using bots to execute over 100,000 low-cost trades, finding that individual 'buy' actions caused short-term increases in buy-side activity hundreds of times larger than the interventions.
As cryptocurrencies gain popularity and credibility, marketplaces for cryptocurrencies are growing in importance. Understanding the dynamics of these markets can help to assess how viable the cryptocurrnency ecosystem is and how design choices affect market behavior. One existential threat to cryptocurrencies is dramatic fluctuations in traders' willingness to buy or sell. Using a novel experimental methodology, we conducted an online experiment to study how susceptible traders in these markets are to peer influence from trading behavior. We created bots that executed over one hundred thousand trades costing less than a penny each in 217 cryptocurrencies over the course of six months. We find that individual "buy" actions led to short-term increases in subsequent buy-side activity hundreds of times the size of our interventions. From a design perspective, we note that the design choices of the exchange we study may have promoted this and other peer influence effects, which highlights the potential social and economic impact of HCI in the design of digital institutions.