Financial contagion in cryptocurrency exchanges: Evidence from the FTT collapse

Luca Galati, Alexander Webb and Robert I. Webb

Finance Research Letters, 2024, vol. 67, issue PA

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.

Keywords: Cryptocurrencies; Stablecoins; Cryptocurrency exchanges; Volatility spillovers; Market crashes; Financial contagion (search for similar items in EconPapers)
JEL-codes: D47 F31 F61 G14 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324007773

DOI: 10.1016/j.frl.2024.105747

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