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Examines predictability of cryptocurrency distress in turbulent markets, suggesting reliability varies by conditions.
Can the distress of a cryptocurrency be predicted from its market behavior, and is that predictability reliable when it matters most? Using daily data for 609 USD-quoted coins traded on Kraken between 2013 and 2025, we built a survivorship-inclusive coin-quarter panel and model the onset of severe, sustained price distress—a deep, non-recovering drawdown relative to a trailing peak. A panel logit confirmed that realized volatility, illiquidity, weak momentum, and asset youth predict distress, with a coin-stratified cross-validated out-of-sample AUC of about 0.68. Our central contribution was to show that this predictability is regime-dependent. Interactions between coin-level signals and contemporaneous market-wide volatility are jointly significant (likelihood-ratio p < 0.001), and a rolling-origin evaluation reveals prospective accuracy swinging from no better than chance (AUC 0.43) to strong (0.79) across years. This regime-dependence is robust across alternative distress thresholds, regime proxies, data frequencies, cluster-bootstrap inference, and replication on a second exchange (Binance), though the individual signal channels are not. Testing the most natural mechanism—rising cross-asset co-movement in turbulent markets—we find no support. Microstructure-based early-warning signals for crypto distress are thus conditionally reliable: informative in calm markets but unreliable in the turbulent conditions where warning is most valuable.
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Aldhahi et al. (2026) studied this question.
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