Contagion effects of permissionless, worthless cryptocurrency tokens: Evidence from the collapse of FTX

Thomas Conlon, Shaen Corbet and Hou, Yang (Greg)

Journal of International Financial Markets, Institutions and Money, 2024, vol. 91, issue C

Abstract: This paper investigates the price discovery relationships between FTT Token, issued by the cryptocurrency exchange FTX, and a set of assets and liabilities held by FTX amid a period of catastrophic financial decline by applying novel information flow measurement techniques. Results indicate that during key phases associated with the collapse of FTX, FTT Token had an informational lead over multiple assets, including cryptocurrencies such as Ethereum. Furthermore, we identify significant interactions between the FTT Token and both Robinhood shares and the token Serum, raising concerns about the direct influence of permissionless, technically valueless tokens on other assets and the potential challenges to market stability and investor protection. Our findings underscore the need for stronger policy-making, regulatory, and ethical considerations in cryptocurrency markets.

Keywords: Cryptocurrency; Tokens; Corporate failure; Information flow; Price discovery (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:91:y:2024:i:c:s1042443124000064

DOI: 10.1016/j.intfin.2024.101940

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