Cryptocurrency (crypto) is a digital asset whose value is the function of the algorithm it is based on. This algorithm, or protocol, is the core of the crypto. It defines, among many other things, whether new crypto units can be created, the circumstances under which new units can be created, and the ownership of these new units. The protocol is coded and distributed to users as software. Being software, crypto is prone to bugs, requires upgrades, and subject to hacking. We use this variation in holders’ type and in crypto type to study two questions: (1) Do announcements that provide important information about the future of the crypto (e.g., protocol upgrades) increase the information asymmetry across sophisticated investors and pure users? and (2) Do announcements (e.g., on Twitter) with wider spread decrease the value lost by pure users? That is, does a medium like Twitter allows for wide reach that is effective enough to also inform pure users and thus decrease the information asymmetry?

1. Disclosure in the world of
cryptocurrency
Danqi Hu, Sarit Markovich, Valerie Zhang

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https://kellogg.qualtrics.com/jfe/form/SV_8v8vqdOmFqBboHj
https://bitinfocharts.com/comparison/tweets-bch.html

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6. Blockchain disclosure of information
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7. Research questions
 Different types of crypto holders: payment users and investors
 Investors likely hear and respond to information disclosure by the community. For example:
– Protocol changes
– Upgrades
– Disagreements
 Payment user likely do not respond
– Don’t hear about it
– Don’t understand the implications
 What is the extent of information asymmetry between payment users and investors?
– Announcements that disclose important information about the future of the crypto likely
increase the information asymmetry across sophisticated investors and payment users
– Quantify the value lost by payment users
 Do announcements with wider spread decrease the value lost by payment users?
– That is, does a medium like Twitter allow for wide reach that is effective enough to also
inform payment users and thus decrease the information asymmetry?
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10. Example: BCH November 2018 upgrade
a.k.a The Hash War
 BCH community agreed on planned upgrades on the 15th of every May &
November
 Prior to the Nov. 15, 2018 upgrade, disagreement in the community about
the inclusion of a specific feature
– If some nodes/miners do not support the new feature, they will reject transactions that
include the feature while other nodes will regard the transaction legal
– This will result in two different chains
 “Loud” discussion on different channels (Twitter, Reddit, Telegram, etc.)
– Some threaten with 51% attack—the hash war
– BTC miners come to the rescue
 The disagreement ended with two competing chains 
bitcoin ABC & bitcoin SV
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Nov. 1 Nov. 6 Nov. 15

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18. Model: Trading with heterogeneous players
 Two types of players:
– “Pure” users that use crypto only for payments
– Investors (might also use crypto for payments)
 Information flows freely and reaches the investors
 Pure users do not follow the information and/or cannot understand the
implications of the information on the price of the crypto
 The informed investors trade based on this public information and their
interpretation of this public information
 Pure users buy/sell for transaction purposes only
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19. Trading with heterogeneous players
 Two main trading options:
– Limit order—an order to buy or sell an asset at a specific price or better. The order will
be executed only if/when a trader is willing to sell/buy at that price
– Market order—an order to buy or sell an asset immediately at the current market price
 Investors put either limit or market orders
 Pure users put market orders
 Investors listen to news but have different interpretations.
 Pure users have no or poor information and thus continue trading regardless
of announcements
– Increases liquidity to the market
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20. Trading with heterogeneous players
 We follow Eyster et al. (2019) and Biasis et al. (2010) and assume that:
An increase in the fraction of unaware users should cause higher liquidity because
unaware users do not perceive adverse selectin and are thus willing to trade
 Events increase the fraction of unaware users
– Overtime more and more users hear about the event
 We test
– whether liquidity increases at the time of an announcement
– Whether investors respond more than pure users
– Whether response differs across different cryptos and exchanges
 Quantify the effect on the unaware users
 In the future: Test whether the liquidity effects change if unaware users rationally
learn from disclosures
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21. Data
 Announcements: Tweets on events
– Example keyword: “upgrade”, “roadmap,” version”, “bug”, etc.
 Transaction volume (# of units) for
– Bitcoin, Ethereum, Monero, Bitcoin cash, Zcash, Stellar
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Event
-15 mins +15 mins-30 mins +30 mins
-12 hours +12 hours

22. Initial Results--Volume
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(1) (2) (3)
event_pre_30_min 0.163 0.154*** 0.0634*
(0.955) (2.684) (1.674)
event 0.518*** 0.564*** 0.128***
(3.057) (8.295) (4.288)
event_post_30_min 0.0116 0.0419 0.0691*
(0.0685) (0.683) (1.747)
Constant 7.870*** 1.346*** 7.117***
(314.8) (495.8) (4,253)
Observations 15,372 15,372 16,021
R-squared 0.001 0.863 0.920
Event Date FE NO Yes Yes
Blockchain FE NO Yes Yes

23. Initial Results—Trade size
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(1) (2) (3)
event_pre_30_min 0.139 0.137*** 0.0648
(1.625) (2.884) (1.528)
event 0.509*** 0.534*** 0.145***
(5.989) (8.686) (3.042)
event_post_30_min -0.0496 -0.0309 -0.0577
(-0.582) (-0.386) (-0.756)
Constant 9.067*** 6.051*** 0.328***
(722.7) (2,356) (143.5)
Observations 15,372 15,372 15,372
R-squared 0.003 0.486 0.803
Event Date FE NO Yes Yes
Blockchain FE NO Yes Yes

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log(volume) log(volume) log(volume) $$ log(volume) $$
event_pre_30_min 0.201** 0.202** 0.167 0.188*
event_pre_30_min Binance -0.118 -0.119 -0.0874 -0.103
event_pre_30_min Coinbase 0.0105 0.00969 0.0425 0.0203
event_pre_30_min Bitstamp -0.0902 -0.0909 -0.0751 -0.0933
event_pre_30_min Gemini 0.241* 0.240* 0.281* 0.243
event 0.584*** 0.584*** 0.542*** 0.582***
Event Binance -0.209** -0.209** -0.145 -0.182*
Event Coinbase -0.0106 -0.0113 0.0190 -0.0230
Event Bitstamp -0.0413 -0.0419 -0.0249 -0.0277
Event Gemini 0.238* 0.237* 0.328** 0.272*
event_post_30_min 0.329*** 0.330*** 0.399*** 0.375***
event_post_30_min Binance -0.281*** -0.282*** -0.353*** -0.326***
event_post_30_min Coinbase -0.101 -0.102 -0.160 -0.141
event_post_30_min Bitstamp -0.250 -0.251 -0.313* -0.301*
event_post_30_min Gemini -0.0782 -0.0789 -0.0956 -0.0931
Binance 2.911*** 2.902*** 3.373*** 0.593***
Coinbase 1.140*** 1.132*** 1.618*** 0.0971***
Bitstamp -2.429*** -2.442*** -8.754*** -1.017***
Gemini -1.159*** -1.167*** -0.676*** -2.758***
Observations 48,727 48,727 48,727 48,727
R-squared 0.772 0.773 0.800 0.918
Event Date FE Yes Yes Yes Yes
Blockchain FE No Yes No Yes

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log(volume) log(volume) log(volume) $$ log(volume) $$
event_pre_30_min 0.208 0.208 0.259* 0.259*
event_pre_30_min BTC 0.00764 0.00764 -0.0216 -0.0216
event_pre_30_min ETH -0.0452 -0.0452 -0.0472 -0.0472
event_pre_30_min Stellar -0.250 -0.250 -0.242 -0.242
event_pre_30_min Monero -0.0482 -0.0482 0.00355 0.00355
Event 0.337** 0.337** 0.611*** 0.611***
Event BTC -0.436*** -0.436*** -0.691*** -0.691***
Event ETH 0.177 0.177 0.323 0.323
Event Stellar -0.189 -0.189 -0.320 -0.320
Event Monero 0.452** 0.452** 0.641*** 0.641***
event_post_30_min 0.146 0.146 0.213* 0.213*
event_post_30_min BTC -0.350*** -0.350*** -0.395*** -0.395***
event_post_30_min ETH -0.0352 -0.0352 -0.0657 -0.0657
event_post_30_min Stellar -0.156 -0.156 -0.178 -0.178
event_post_30_min Monero -0.193 -0.193 -0.264 -0.264
BTC 6.188*** 6.188*** 13.21*** 13.21***
ETH 6.788*** 6.788*** 9.106*** 9.106***
XLM 11.87*** 11.87*** 6.706*** 6.706***
XMR -0.548*** -0.548*** -0.535*** -0.535***
Observations 15,372 15,372 15,372 15,372
R-squared 0.863 0.863 0.811 0.811
Event Date FE Yes Yes Yes Yes
Blockchain FE No Yes No Yes