A College of Vaasa researcher, Klaus Grobys, investigates how the uncertainty within the Bitcoin market reacts if Bitcoin is topic to hacking incidents – or so-called cyberattacks. The research finds two results on Bitcoin volatility – a right away impact and a delayed impact. The proposed mannequin might probably function a software for buyers which can be lively within the by-product marketplace for cryptocurrencies.
A complete of 1.1 million bitcoin had been stolen within the 2013–2017 interval. Given the present worth for Bitcoin exceeding $40,000 the corresponding financial equal of losses is greater than $44 billion, highlighting the societal influence of this legal exercise. The query arises how does the uncertainty within the Bitcoin market – measured by its volatility – reply to such cyberattacks.
A not too long ago revealed analysis article from Dr. Klaus Grobys within the well-known journal Quantitative Finance addresses this query.
In his research, he examined 29 hacking incidents that occurred within the Bitcoin market within the 2013–2017 interval. A stunning results of this research is that Bitcoin volatility doesn’t reply to hackings with a subsequent improve in uncertainty between the following day (𝑡 + 1) and the fourth day (𝑡 + 4) after a cyberattack happened.
Nonetheless, the research finds proof for a delayed response in volatility. Particularly, Bitcoin return volatility will increase considerably on the fifth day (𝑡 + 5) after a hacking incident occurred.
This consequence stays strong even after controlling for the fast volatility response at time 𝑡 = 0 which is the day the place the precise cyberattack happened. The delayed response of Bitcoin return volatility factors in direction of inefficiency within the Bitcoin market as shocks want time to be totally priced-in.
Whereas earlier research documented co-movements of cryptocurrency returns, a novel discovering of the present analysis is that hackings within the Bitcoin market additionally have an effect on different cryptocurrency markets.
Particularly, the proof suggests that there’s a contagion impact in volatility related to hacking incidents. Like evidenced within the Bitcoin market, the volatility within the Ethereum market will increase dramatically with a time delay at time 𝑡 + 5. A somewhat stunning result’s that there seems to be no proof for a contemporaneous response in Ethereum’s volatility. Nonetheless, the delayed volatility improve for Ethereum returns displays just about the identical financial magnitude as for Bitcoin returns.
One other fascinating result’s that neither Bitcoin returns nor Ethereum returns seem to exhibit asymmetries of their volatility processes despite the fact that it’s a stylized reality of conventional monetary markets that the volatility responds stronger to destructive improvements.
“My research is a primary try to reveal potential danger elements and their results on the brand new rising digital monetary markets – cyberattacks is just one of those new danger elements. From my viewpoint, far more analysis must be performed on this difficulty,” says Dr. Klaus Grobys.
Reference: “When the blockchain doesn’t block: on hackings and uncertainty within the cryptocurrency market” by Klaus Grobys, 5 February 2021, Quantitative Finance.