Embracing the Future or Buying into the Bubble: Do Sophisticated Institutions Invest in Crypto Assets?

39 Pages Posted: 18 Nov 2021 Last revised: 8 Mar 2024

See all articles by Luke DeVault

Luke DeVault

Clemson University - Department of Finance

Harry J. Turtle

Colorado State University, Fort Collins - Department of Finance & Real Estate

Kainan Wang

University of Toledo

Multiple version iconThere are 2 versions of this paper

Date Written: March 7, 2024

Abstract

We document that early institutional investors in cryptocurrencies―a new, ambiguous, and risky asset class―demonstrate a willingness to innovate and adapt to change in financial markets. These investments represent a costly signal from institutional managers to investors because the risks of being wrong have both reputational costs and potential career implications. We examine the performance of institutions willing to make crypto investments relative to the performance of their peers who do not. The results show that institutional crypto investors outperform their peers by about 2.8% per year, while followers who first invest in crypto assets in the second half of the sample underperform those without crypto investments. Further, propensity score matching analysis shows early institutional investors in crypto assets outperform those without crypto asset holdings in both subperiods.

Keywords: Institutional investor; Cryptocurrency; Portfolio performance; Trading skill

JEL Classification: G11; G23

Suggested Citation

DeVault, Luke and Turtle, Harry J. and Wang, Kainan, Embracing the Future or Buying into the Bubble: Do Sophisticated Institutions Invest in Crypto Assets? (March 7, 2024). Available at SSRN: https://ssrn.com/abstract=3965717 or http://dx.doi.org/10.2139/ssrn.3965717

Luke DeVault

Clemson University - Department of Finance ( email )

Clemson, SC 29634
United States

Harry J. Turtle

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

Kainan Wang (Contact Author)

University of Toledo ( email )

Neff Department of Finance
Mail Stop 103
Toledo, OH 43606
United States

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