Uncovering the impact of FTX, BlockFi and the genesis collapse on crypto markets: evidence from the event study approach

Using the event study approach, we investigate the impact of the FTX collapse on the top ten cryptos in terms of market capitalization. The sample period starts from 5 May 2022 and ends on 21 November 2022. The analysis of aggregate cryptocurrencies indicates negative abnormal returns leading up to the event day, especially in the last three days (with the highest being witnessed on t − 1, which is more than 13%). Moreover, the cumulative abnormal returns of individual cryptocurrencies reveal that most of them observed negative abnormal returns, especially post-event days (t + 1, t + 3, t + 5, t + 7 and t + 9). We link our findings to investors’ trust erosion in response to such events, thus creating panic among investors. Specifically, we argue that such shocks are bound to create trust deficits, owing to a lack of regulation related to investor protection. Motivated by these findings, we also tested the implications of the BlockFi and Genesis collapse. To cover these events, we extend the sample to 24 January 2023. Overall, our results indicate that these events did not have any significant impact on the crypto market. We attribute this finding to the expectation adjustment of crypto investors.This study provides timely and critical insights into how major institutional failures—specifically the collapse of FTX, BlockFi, and Genesis—have shaped investor behavior and market dynamics in the cryptocurrency sector. By employing an event study methodology, our findings reveal that the FTX collapse triggered substantial negative abnormal returns, underscoring the market’s vulnerability to trust shocks and highlighting the consequences of regulatory gaps in investor protection. In contrast, the muted market response to the later BlockFi and Genesis collapses suggests an evolving investor psychology characterized by expectation adjustment. These results offer valuable evidence for policymakers, regulators, and market participants on the systemic importance of transparency and regulatory oversight in preserving market integrity and investor confidence in decentralized financial ecosystems.