Has the Introduction of Cryptocurrency as Institutional-grade Assets Decreased Herding Behavior?

This study investigates the impact of institutional-grade assets, specifically the approval of the Bitcoin Exchange-Traded Fund (ETF), on herding behavior in the cryptocurrency market. The objective is to explore how the institutionalization of Bitcoin may decrease investor behavior, particularly the tendency to follow the crowd, which is a common phenomenon in financial markets. I hypothesize that introducing institutional-grade assets could reduce herding behavior, as institutional investors may bring more stability and rationality to the market. To analyze herding behavior, we employ two methodologies: the Cross-Sectional Standard Deviation (CSSD) and the Cross-Sectional Absolute Deviation (CSAD) methods. Our analysis covers 77 days before and after January 10, 2024, the date of the Bitcoin ETF approval. While our findings do not provide strong, concrete evidence of herding behavior, we observe some indications of a behavioral shift, suggesting a potential decrease in herding post-introduction of institutional-grade assets. However, it is essential to note that the regression coefficients are nonsignificant, which limits the strength of our claims regarding changes in herding behavior.