Federal Reserve Bank of Cleveland study reveals crypto investors swayed by Bitcoin returns

A Federal Reserve Bank of Cleveland study finds crypto investors’ allocation and trading decisions are strongly influenced by recent Bitcoin returns rather than fundamentals. This return-chasing behavior creates positive feedback loops that can amplify price momentum and downside spirals. The result is greater realized volatility and heightened tail risk for Bitcoin as investor flows exacerbate swings. Policymakers and market participants should expect price moves to be increasingly driven by investor sentiment and past performance rather than intrinsic valuation.