One Rising Ship Sinks Other Ships: Cross-Chain Negative Spillovers in Crypto Markets

2026-02-27

AI Summary

This study investigates the existence and underlying mechanisms of negative spillover effects among crypto assets across different blockchains. Leveraging on-chain data from five major chains—including Ethereum and Solana—between 2022 and 2025, the authors employ a nonlinear factor model, on-chain activity metrics, and proxies for extreme return events, while controlling for global equity markets, interest rates, and Bitcoin-related macro factors. They identify and empirically validate, for the first time, an “attention-driven negative spillover” mechanism: price increases on one chain are often accompanied by declines on others, revealing a cross-chain substitution effect that starkly contrasts with the positive co-movement typical of traditional equity markets. The findings demonstrate that attention shocks significantly amplify this negative spillover, offering new insights for crypto portfolio diversification, systemic risk measurement, and token issuance regulation.

Technology Category

• Multiagent Systems: Mechanism Design
• Data Mining & Knowledge Management: Mining of Spatial, Temporal or Spatio-Temporal Data
• Game Theory and Economic Paradigms: Mechanism Design

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Security and Privacy: Blockchains and distributed ledgers
• Web Mining and Content Analysis: Content-based information diffusion

Abstract

We document the first systematic evidence of negative spillover effects in crypto asset returns across blockchains. Using on-chain data from Ethereum, Solana, Binance Smart Chain, Arbitrum, and Avalanche (2022-2025), we show that surges on one chain often coincide with declines on others, in contrast to the positive co-movements typical of equity markets. These spillovers intensify during attention shocks, proxied by chain activity and extreme return events, and persist after controlling for global equity returns, interest rates, and Bitcoin. Nonlinear factor models reveal that attention-driven capital reallocation, rather than common information, underlies these dynamics. Our findings introduce a new form of cross-market linkage, attention-induced substitution, that shapes risk transmission in crypto markets. The results carry implications for portfolio diversification, systemic risk measurement, and regulation of token launches that may trigger cross-chain capital flight.

Problem

• cross-chain spillovers
• crypto markets
• attention shocks
• capital reallocation
• negative spillover effects

Innovation

• cross-chain spillovers
• attention-induced substitution
• crypto market dynamics
• nonlinear factor models
• on-chain data