Paper: arXiv 2301.02027

Authors: Luca Mungo, Silvia Bartolucci, Laura Alessandretti

Abstract

Since the introduction of Bitcoin in 2009, the dramatic and unsteady evolution of the cryptocurrency market has also been driven by large investments by traditional and cryptocurrency-focused hedge funds. Notwithstanding their critical role, our understanding of the relationship between institutional investments and the evolution of the cryptocurrency market has remained limited, also due to the lack of comprehensive data describing investments over time. In this study, we present a quantitative study of cryptocurrency institutional investments based on a dataset collected for 1324 currencies in the period between 2014 and 2022 from Crunchbase, one of the largest platforms gathering business information. We show that the evolution of the cryptocurrency market capitalization is highly correlated with the size of institutional investments, thus confirming their important role. Further, we find that the market is dominated by the presence of a group of prominent investors who tend to specialise by focusing on particular technologies. Finally, studying the co-investment network of currencies that share common investors, we show that assets with shared investors tend to be characterized by similar market behavior. Our work sheds light on the role played by institutional investors and provides a basis for further research on their influence in the cryptocurrency ecosystem.

Complexity vs Empirical Score

  • Math Complexity: 3.5/10
  • Empirical Rigor: 6.5/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper leverages a unique longitudinal Crunchbase dataset to construct network topologies of institutional co-investments in cryptocurrencies. While the mathematical formulations are primarily restricted to standard network metrics and basic statistical correlations, the empirical approach provides novel insights into how institutional investor clustering impacts token returns.

Research Flowchart

  flowchart TD
    A[Goal: Understand Institutional Investment Impact on Crypto Market] --> B[Input: Crunchbase Data 2014-2022<br>1,324 Tokens & Investor Profiles]
    B --> C[Method: Analyze Market Cap Correlation & Investor Specialization]
    B --> D[Method: Construct Token Co-Investment Network]
    C --> E[Finding: Market Cap Correlates Strongly with Institutional Investment Size]
    C --> F[Finding: Market Dominated by Prominent Investors Specializing in Specific Tech]
    D --> G[Finding: Tokens Sharing Common Investors Exhibit Similar Market Behavior]