Style investing and return comovement in the cryptocurrency market

Investors tend to group assets into different categories to simplify their portfolio allocation decisions. Selecting investment styles may involve prioritizing different transaction speeds based on the cryptocurrency market's liquidity. This study explores category-based co-movement in cryptocurrency markets. We employ transaction throughput as a criterion for categorizing cryptocurrencies, a significant indicator of a network's efficiency that could affect investors' sentiment when selecting cryptocurrencies for investment. We find evidence of transaction speed-based habitat among cryptocurrency investors. Our results suggest a more pronounced level of co-movement among cryptocurrencies that exhibit similar transaction speed characteristics. This co-movement is mainly influenced by the movements in returns within portfolios sharing a matching transaction speed category. The robustness of our findings persists across different approaches to data categorization and rebalancing.