When the Blockchain Does Not Block: On Hackings and Uncertainty in the Cryptocurrency Market

Abstract

A total of 1.1 million bitcoin were stolen in the 2013–2017 period. Noting that the average price for Bitcoin in 2018 was USD 7,572 the corresponding monetary equivalent of losses is USD 8.9 billion which strongly shows the societal impact of this criminal activity. Investigating the response of the uncertainty of Bitcoin when hacking incidents occur, the results of this study point toward a delayed response in volatility. The volatility increases significantly only at day t+5. Incidents of hacking that occur in the Bitcoin market affect uncertainty for another cryptocurrency Ethereum too. Again, the evidence suggests a delayed response. However, Bitcoin and Ethereum do not exhibit asymmetric responses to negative innovations.

Keywords: Cryptocurrency, Bitcoin, Ethereum, Volatility, Contagion, Hackings, Cyberattacks

JEL Classification: C22, G12, G13, G14