The effects of hacking events on bitcoin

• Published date: 01 December 2022
• Author: Huy Pham,Binh Nguyen Thanh,Vikash Ramiah,Nisreen Moosa
• Date: 01 December 2022
• DOI: http://doi.org/10.1002/pa.2744

RESEARCH ARTICLE

The effects of hacking events on bitcoin

Huy Pham

1

| Binh Nguyen Thanh

1

| Vikash Ramiah

2

| Nisreen Moosa

3

1

School of Business and Management, RMIT

University, Ho Chi Minh City, Vietnam

2

Faculty of Business, University of

Wollongong Dubai, Dubai, United Arab

Emirates

3

School of Commerce, University of South

Australia, Adelaide, South Australia, Australia

Correspondence

Huy Pham, School of Business and

Management, RMIT University, 702 Nguyen

Van Linh Blvd., District 7, Ho Chi Minh City,

Vietnam.

Email: huy.phamnguyenanh@rmit.edu.vn

We examine the short-term and long-term effects of hacking events on bitcoin

return. Additionally, we attempt to find out if investors can benefit from these events

by adopting and modifying the models proposed by Baur et al. (2018) [Journal of

International Financial Markets, Institutions & Money, 54, 177–189] who compare the

performance of bitcoin against FX returns and the S&P500. The results show that

hacking events present an opportunity for investors to make a profit if they invest in

bitcoin, stocks and currencies. Such an opportunity, however, does not last for long.

KEYWORDS

bitcoin return, FX return, hacking events, stock return

1|INTRODUCTION

As the economy and society become more digital, it is reasonable to

argue that digital assets will become more important over time and

Bitcoin could be the replacement of gold in such a digital world. One

of the best features of bitcoin is its ultimate digital scarcity that

becomes even more apparent in light of the substantial monetary

expansion in major economies seeking to stimulate the real economy

during the Covid-19 pandemic. Bitcoin is viewed as a scarce digital

asset in which its value will grow in tandem with its network users

who trust and want to hold Bitcoin as a hedge against the monetary

expansion diluting the existing stocks of currencies. In a sense, bitcoin

is a project or company which is fuelled by the work of all the people

in its network and similar to those investors who hold stocks around

the globe, bitcoin users and investors are always on the lookout for an

increase in bitcoin price.

The pricing of bitcoin (and cryptocurrencies in general) is an issue

that has attracted the attention of finance academics and traders who

strive to make money out of price volatility. Many studies have exam-

ined the determinants of bitcoin price movement or its fundamental

value, including Bolt and van Oordt (2016), Li and Wang (2017),

Hayes (2017) and Ciaian et al. (2016), Luther and Salter (2017), and

Hazlett and Luther (2020). Several other studies investigated the effi-

ciency of the bitcoin market. Cheah et al. (2018), for instance, find

that the bitcoin market is fractionally cointegrated and that uncer-

tainty has a negative impact on the cointegration relationship. Fur-

thermore, Chan et al. (2018) examine the usefulness of bitcoin for

diversifying risk against the EURO STOXX index, Nikkei, Shanghai

A-Share, S&P 500 and the TSX index. By using a pairwise GARCH

process on daily, weekly, and monthly return data, they find that the

hedging abilities of bitcoin are less significant for daily and weekly

data. Another study by Baur et al. (2018) finds that traditional crisis

events—such as natural disasters, terrorist events and economic

crises—do not affect the price of bitcoin.

We suspect that the price of bitcoin does not follow traditional

extreme events, but rather it follows crypto extreme events such as

hacking. One ofthe most important featuresof bitcoin is its blockchain

has a low probability of being hacked. However, this feature does not

apply to the cryptocurrency exchanges as the exchanges (where most

bitcoins are traded) are more susceptible to securitythreats. The 2014

Mt.Gox Hack,for instance, is a typical exampleof how hackers can tam-

per the transactions and steal bitcoin from the exchanges. In this rela-

tively new literature, the empirical evidence on the efficiency of the

bitcoin marketis relatively weak, and this is why we want to embarkon

this endeavour toinvestigate the effect of hacking events on the price

of bitcoin. Furthermore, we attempt to find outif investors can formu-

late an investment strategy to take advantage of those events. The

paper is organisedas follows: Section 2describesthe data and method-

ology used in this study, Section 3presents the empirical results, and

Section 4concludes the paper.

2|DATA AND METHODOLOGY

We use daily data, covering the period between 9 August 2013 and

9 August 2018, on bitcoin price, collected from WinkDex, exchange

Received: 21 August 2020 Revised: 15 June 2021 Accepted: 2 August 2021

DOI: 10.1002/pa.2744

J Public Affairs. 2022;22(Suppl. 1):e2744. wileyonlinelibrary.com/journal/pa © 2021 John Wiley & Sons Ltd. 1of5

https://doi.org/10.1002/pa.2744