Mind over market: Behavioral insights into cryptocurrency herding dynamics

This paper reframes cryptocurrency herding as a regime-dependent behavioral coordination process shaped by retail narrative attention and overconfidence-related trading aggressiveness, rather than as a persistent market-wide dispersion anomaly. Using daily data for the top 15 cryptocurrencies from 2018 to 2024, we examine whether herding intensifies when search-based narrative imbalance and aggressive trading relative to realized risk reinforce one another across regimes. Herding is episodic, nonlinear, and concentrated around major disruptions, including the COVID-19 crash, the 2021 bull-market peak, 2022 DeFi deleveraging, 2023 banking and regulatory stress, and the late-2024 adjustment. Bitcoin and Ethereum anchor convergence during expansions, while smaller tokens play a larger role during stress periods. Probit estimates show that the Narrative Search Spread (NSS), a Google Trends-based measure of search narrative imbalance, and OC, a volume-to-volatility proxy for overconfidence-related trading aggressiveness, are associated with higher herding probability, whereas policy uncertainty has limited economic relevance. Dynamic evidence indicates that NSS accounts for the largest modeled share of herding variation, while OC becomes more closely associated with herding during volatile transitions. Excluding stablecoins strengthens measured intensity without materially changing timing. Overall, the findings suggest that narrative attention and trading aggressiveness provide early-warning inputs for crypto-market risk monitoring and oversight.