Investor Behavior in Crypto During Geopolitical Shocks

Herd behavior refers to the tendency of investors to follow the actions of a larger group, often ignoring their own analysis or information. This collective movement can lead to asset bubbles during bull markets and sharp sell-offs during downturns. Understanding herd behavior is essential for identifying potential mispricings and avoiding emotionally driven decisions.

Herding behavior has been well studied in the equity markets but less so in the cryptocurrency market. One might expect stronger herding in crypto due to the prevalence of young, inexperienced traders and the fact that crypto markets are under-regulated, less transparent, and highly volatile. However, existing studies have produced inconclusive results.

Reference [1] extends the research on herding in the crypto space by examining behavior during major geopolitical events, such as the COVID-19 pandemic and the Russia–Ukraine war. The authors pointed out,

The main findings of this study are summarized as follows. First, severe herd behavior is documented over the entire sample period when considering abnormal impacts of the GPR and the GPR Threat. Second, herd behavior in cryptocurrency markets is not symmetric, presenting stronger results during bearish markets. Again, we find severe asymmetric herding with the GPR and the GPR Threat. We argue that a role of the GPR Act disappears because cryptocurrency traders subsume, digest, and analyze information related to geopolitical uncertainty since the news is released. Thus, cryptocurrency’s prices and its dispersions are already reflected. Actual realization does not play a role. Third, severe herd behavior during two recent extreme situations that are the COVID-19 pandemic and the Russia invasion to Ukraine are strongly observed in nearly all cases. Specifically, statistical significance of the GPR Act represents that an actual realization of adverse geopolitical events goes beyond investors’ expectations, creating a high uncertainty and subsequently reinforcing herding. Overall, we relate our findings to the “fear of missing out” (FOMO) phenomenon and the pump and dump schemes suggested by Baur and Dimpfl (2018).

In short, the authors found that herding intensifies during such events and is clearly present throughout these periods.

This research is an important contribution to behavioral finance in the crypto market, as it enhances understanding, supports regulators in designing more informed policies, and contributes to greater market stability.

Let us know what you think in the comments below or in the discussion forum.

References

[1] Phasin Wanidwaranan, Jutamas Wongkantarakorn, Chaiyuth Padungsaksawasdi, Geopolitical risk, herd behavior, and cryptocurrency market, The North American Journal of Economics and Finance Volume 80, September 2025, 102487

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