COVID-19 and Herd Behavior in Cryptocurrency Market

Given the global prevalence of COVID-19 affecting financial markets, including cryptocurrency markets, examining trader behavior during the pandemic is particularly intriguing. This research employs the Cross-Sectional Absolute Dispersion (CSAD) method and Ordinary Least Squares (OLS) technique to analyze herd behavior in cryptocurrency markets across five distinct periods: the overall period, pre-COVID-19, during the COVID-19 pandemic, bullish markets, and bearish markets. Daily price data for four major cryptocurrencies by market capitalization (Bitcoin, Ethereum, Tether, and Ripple) from January 2019 to December 2021 are used. The study results indicate strong herd behavior throughout the entire period, suggesting that investors tend to follow market trends during this time. Additionally, herd behavior is not observed in the pre-COVID-19 period, whereas the COVID-19 pandemic period is associated with significant herd behavior in cryptocurrency markets. The findings also reveal that herd behavior is significantly confirmed only in bullish markets, implying that traders in cryptocurrency markets during the COVID-19 pandemic and in bullish markets tend to make similar trading decisions.