Are Cryptos Different? Evidence from Retail Trading

Trading in cryptocurrencies has grown rapidly over the last decade, primarily dominated by retail investors. Using a large dataset of more than 200,000 retail traders from eToro, we show that they have a different model of the underlying price dynamics in cryptocurrencies compared to other assets. Retail traders in our sample are contrarian in stocks and gold, yet the same traders follow a momentum strategy in cryptocurrencies. Individual charac- teristics do not explain the differences in how people trade cryptocurrencies versus stocks, suggesting that our results are orthogonal to differences in investor composition or clientele effects. Neither lack of cashflow information, inattention, or preference for lottery-like stocks explain our findings. We conjecture that retail investors hold a model of cryptocurrency prices, where positive returns increase the likelihood of future widespread adoption, which in turn will drive up asset prices.