Do risk preferences drive momentum in cryptocurrencies?

The cryptocurrency market operates continuously, leading to frequent price fluctuations and information dissemination. This can hinder investors from reacting promptly to market changes, a phenomenon attributed to investors' limited attention. Research in traditional markets shows that the limited attention bias allows successful implementation of momentum strategies. However, past research on cryptocurrency markets finds mixed results. To resolve the puzzle, we utilize a survivorship bias-free dataset while accounting for variations in market capitalization and trading volume. This differentiation is crucial given young and tech affine retail investors' inclination toward smaller-capitalized cryptocurrencies, due to their higher risk tolerance and limited attention. More risk averse investors such as institutional investors, in contrast, focus more on top cryptocurrencies. In line with expectations, we find effective momentum strategies among larger-capitalized cryptocurrencies.