Reputational contagion and the fall of FTX: Examining the response of tokens to the delegitimization of FTT

Document Type

Article

Publication Date

6-1-2023

Abstract

Intertwined with the recent fall of cryptocurrency exchange FTX was the unveiling to investors of the lack of asset support for FTX's flagship token FTT. Given interest in reputational contagion, as well as recent academic and investor interest in digital tokens, we are motivated to take advantage of the FTX/FTT event to investigate reputational contagion to other tokens. We employ an event study approach to gauge the impact of the FTX collapse on a variety of tokens. Results of abnormal returns, as well as CARs and CAARs, indicate almost all tokens initiated a persistent bearish trend on the event day.

Publication Title

Finance Research Letters

DOI

10.1016/j.frl.2023.103704

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