Loaded for Bear: Bitcoin Private Wallets, Exchange Reserves and Prices

61 Pages Posted: 4 Sep 2021 Last revised: 25 Jul 2022

See all articles by Lai T. Hoang

Lai T. Hoang

The University of Western Australia

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Date Written: August 10, 2021

Abstract

This study highlights a special feature of cryptocurrency trading and offers information about investor behavior that cannot be observed in traditional financial markets. We find that investors prefer holding bitcoin off exchanges in private wallets and primarily use exchanges to trade. Consequently, bitcoin exchange reserve changes resulting from the movement of bitcoin between private wallets and exchange accounts are negatively related to contemporaneous and future bitcoin returns. Specifically, the transfer of bitcoin on exchanges implies increased selling pressure and the transfer off exchanges implies decreased selling pressure. In turn, flows onto exchanges are triggered by large negative shocks and increased volatility.

Keywords: blockchain; bitcoin; exchange reserves; price pressure; on-chain transactions; off-chain transactions

JEL Classification: E42, F31, G12, G17

Suggested Citation

Hoang, Lai T. and Baur, Dirk G., Loaded for Bear: Bitcoin Private Wallets, Exchange Reserves and Prices (August 10, 2021). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3902504 or http://dx.doi.org/10.2139/ssrn.3902504

Lai T. Hoang (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Dirk G. Baur

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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