The Interplay of Opinions and Behavior in Social Trading: The Dynamics of Early Cryptocurrency Adoption

This paper studies how the interplay of posting and trading behaviors within a social network influences an individual’s decision to adopt cryptocurrency. Due to the unique features of cryptocurrency as a financial instrument and the lack of standardized information, social media are an important information channel through which individuals can decide whether to trade cryptocurrencies. However, the vast and unregulated nature of social media can often lead to the dissemination of information of questionable credibility. We exploit a unique dataset from a large social trading platform and study how the interplay of opinions and behavior within social networks influences an individual’s decision to adopt cryptocurrency. We document a pronounced social learning effect in cryptocurrency adoption. Individuals are more inclined to adopt cryptocurrency when their peers do, especially when the trading behavior of those peers aligns with their expressed opinions. Using textual features extracted via a large language model, we show that credibility is the key mechanism underlying the differential effects between adopters and nonadopters. When uncertainty or positive returns are high, investors tend to rely more on positive opinions, regardless of the actual trading behavior of others. Finally, we document the heterogeneous effects of demographic characteristics on social learning. Our study advances social learning theory and has important practical implications.