Clean and Dirty Cryptocurrencies: Herding Behavior During Recent Geopolitical Crises

Abstract

This study aims to investigate the presence of herding behavior in the cryptocurrency market during major geopolitical crises, including the COVID-19 pandemic, the Russo-Ukrainian conflict, and the Israeli-Palestinian conflict. Relying on the CSSD and CSAD approaches, we analyze daily returns for a panel of 17 cryptocurrencies, classified as either "clean" or "dirty" based on their consensus mechanisms and associated energy consumption levels, over the period from December 30, 2019, to December 31, 2024. The results reveal that herding is not a persistent phenomenon across all market phases or crises. However, signs of convergence in investor behavior are detected during the COVID-19 period, particularly among clean cryptocurrencies. The inclusion of a sentiment index indicates that economic uncertainty has a negative and significant impact on returns, suggesting heightened risk aversion during turbulent periods. Moreover, structural break analysis confirms that clean cryptocurrencies are more sensitive to stress events, exhibiting greater behavioral shifts. These findings underscore the heterogeneous nature of investor behavior in the cryptocurrency market and the influence of crisis-induced sentiment over traditional price dynamics. This highlights the need for closer monitoring of environmentally labeled crypto assets under extreme market conditions.