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

TL;DR

This paper provides the first systematic evidence of negative spillover effects across different blockchain networks in crypto markets, driven by attention shifts and affecting risk and diversification strategies.

Contribution

It uncovers the existence of cross-chain negative spillovers in crypto markets and identifies attention-driven capital reallocation as the underlying mechanism.

Findings

Surges on one chain often lead to declines on others.

Spillovers are stronger during attention shocks and extreme events.

Attention-driven reallocation, not common info, explains these dynamics.

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.