A new paper by Finnish academic Dr. Klaus Grobys describes a delayed effect on Bitcoin’s price after cryptocurrency exchanges are hacked.
The paper, published in peer-reviewed journal Quantitative Finance and shared by Eureka, studied 29 exchange thefts totalling 1.1 million BTC ($52 billion) between 2013 and 2017 for effects on crypto volatility.
“Even if the purpose of Ethererum is very different from Bitcoin, cryptocurrencies typically exhibit a high level of co-movement,” wrote Grobys. ”The question arises whether hackings spillover to other cryptocurrencies such as Ethereum.”
- Grobys found Bitcoin volatility increased on the day of the attack (t=0) but Ethereum volatility didn’t.
- Bitcoin volatility subsided in the days following the attack, but spiked “significantly again” after five (t+5).
- Bitcoin stolen from crypto exchanges also affects uncertainty in Ethereum markets “with a time delay of five days.”
To explain the delayed effect, Grobys reasoned hackers often steal cryptocurrency from smaller exchanges with less security.
So, the information would diffuse across crypto markets slower than after attacks on larger platforms.
Grobys also posited the hackers could use one cryptocurrency (Ethereum) to cash out their theft of the other (Bitcoin).
This would serve as downward pressure on the price of the stolen crypto. If hackers often wait five days to sell their stolen Bitcoin for Ethereum, Grobys’ theory could make sense.
Math aside, the research includes an interesting theory on how the delayed response between Bitcoin and Ethereum could meld with options trading strategies to maximize profits in derivatives markets.
The full paper, titled When the blockchain does not block: On hackings and uncertainty in the cryptocurrency market, can be found here.