Abstract
Cryptocurrencies have been broadly scrutinised in recent times for a host of concerning regulatory and cybercriminality issues. Although steps have been taken to promote regulatory sufficiency in the near future, we examine the avenues through which this extremely high-risk industry can derive potentially devastating contagion channels, influencing both unwilling and unsuspecting investors. We focus this research on the expressions of interest by publicly traded companies across the world to utilise cryptocurrency and blockchain projects. We find evidence that there exists a substantial stock price premium and sustained increase in volatility in the aftermath of blockchain announcements, with emphasis on highly-speculative motives such as coin creation and corporate name changes. Changes in price discovery and information flows are found to be largely determined from cryptocurrency-based pricing sources in the aftermath of speculative announcements. We discuss the inherent ethical and legal issues, considering as to whether such announcements are simply an attempt to artificially manipulate share prices and take part in the current phase of crypto-exuberance.
Highlights
An asset price bubble is defined as ‘a market phenomenon characterised by surges in asset prices to levels significantly above the fair value of that asset’
We find evidence that there exists a stock price premium based on the type of cryptocurrency announcement that companies have made
While both the levels and volatility of the share prices are found to be influenced by speculative blockchain and cryptocurrency announcements, we have found that such companies have shared more common characteristics with cryptocurrency markets than that of their domestic indices in the period after such announcements
Summary
An asset price bubble is defined as ‘a market phenomenon characterised by surges in asset prices to levels significantly above the fair value of that asset’. It is with certainty that whether in a bubble phase or not, cryptocurrencies have been at the centre of attention throughout financial markets in recent years. While much evidence points to the existence of a pricing bubble within the cryptocurrency market, opposition to such statement are entrenched in their defensive stance to what exactly constitutes the fundamental value of one particular coin? This has resulted in a substantial increase in the amount of media coverage, and related academic research across a number of disciplines and geographic regions.
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