Several large financial trading platforms have recently begun implementing “copy trading,” a process by which a leader allows copiers to automatically mirror their trades in exchange for a share of the profits realized. While it has been shown in many contexts that platform design considerably influences user choices—users tend to disproportionately trust rankings presented to them—we would expect that here, copiers exercise due diligence given the money at stake, typically USD 500–2 000 or more. We perform a quantitative analysis of two major cryptocurrency copy-trading platforms, with different default leader ranking algorithms. One of these platforms additionally changed the information displayed during our study. In all cases, we show that the platform UI significantly influences copiers’ decisions. Besides being sub-optimal, this influence is problematic as rankings are often easily gameable by unscrupulous leaders who prey on novice copiers, and they create perverse incentives for all platform users.

The web and social media platforms have drastically changed how investors produce and consume financial advice. Historically, individual investors were often relying on newsletters and related prospectus backed by the reputation and track record of their issuers. Nowadays, financial advice is frequently offered online, by anonymous or pseudonymous parties with little at stake. As such, a natural question is to investigate whether these modern financial “influencers” operate in good faith, or whether they might be misleading their followers intentionally. To start answering this question, we obtained data from a very large cryptocurrency derivatives exchange, from which we derived individual trading positions. Some of the investors on that platform elect to link to their Twitter profiles. We were thus able to compare the positions publicly espoused on Twitter with those actually taken in the market. We discovered that 1) staunchly “bullish” investors on Twitter often took much more moderate, if not outright opposite, positions in their own trades when the market was down, 2) their followers tended to align their positions with bullish Twitter outlooks, and 3) moderate voices on Twitter (and their own followers) were on the other hand far more consistent with their actual investment strategies. In other words, while social media advice may attempt to foster a sense of camaraderie among people of like-minded beliefs, the reality is that this is merely an illusion, which may result in financial losses for people blindly following advice.

Since 2018, the cryptocurrency trading landscape has evolved from a collection of spot markets (fiat for cryptocurrency) to a hybrid ecosystem featuring complex and popular derivatives products. In this paper we explore this new paradigm through a study of BitMEX, one of the first and most successful derivatives platforms for leveraged cryptocurrency trading. BitMEX trades on average over 3 billion dollars worth of volume per day, and allows users to go long or short Bitcoin with up to 100x leverage. We analyze the evolution of BitMEX products—both settled and perpetual offerings that have become the standard across other cryptocurrency derivatives platforms. We additionally utilize on-chain forensics, public liquidation events, and a site-wide chat room to describe the diverse ensemble of amateur and professional traders that forms this community. These traders range from wealthy agents running automated strategies, to individuals trading small, risky positions and focusing on very short time-frames. Finally, we discuss how derivative trading has impacted cryptocurrency asset prices, notably how it has led to dramatic price movements in the underlying spot markets.