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Financial contagion in cryptocurrency exchanges: Evidence from the FTT collapse

Author

Listed:
  • Galati, Luca
  • Webb, Alexander
  • Webb, Robert I.

Abstract

To what extent does the collapse of a digital token spread contagion across cryptocurrency markets? How do markets incorporate information in this turbulent setting? We examine contagion effects across major digital exchanges during the collapse of the FTX exchange and its token, FTT. We find evidence of contagion across crypto exchanges. We also examine the information cascade effects of other crypto assets on FTX when nearly all withdrawals were prohibited. We find abnormal returns for major assets, indicating a flight to safety from less to more authoritative digital assets. The implications for traders, exchanges, and policymakers are discussed.

Suggested Citation

  • Galati, Luca & Webb, Alexander & Webb, Robert I., 2024. "Financial contagion in cryptocurrency exchanges: Evidence from the FTT collapse," Finance Research Letters, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324007773
    DOI: 10.1016/j.frl.2024.105747
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    More about this item

    Keywords

    Cryptocurrencies; Stablecoins; Cryptocurrency exchanges; Volatility spillovers; Market crashes; Financial contagion;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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