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The reaction of top cryptocurrencies to lawsuit against Binance: an intraday event study

Author

Listed:
  • Seyed Mehdian
  • Ștefan Cristian Gherghina
  • Ovidiu Stoica

Abstract

Purpose - This paper aims to examine the responses of cryptocurrency markets to the U.S. Securities and Exchange Commission’s (SEC) announcement on June 5, 2023, concerning the charges against Binance. This paper investigates the intraday market reactions and volatilities of a set of cryptocurrencies (Bitcoin, Ethereum, Ripple, Cardano and Litecoin) to this announcement as an event and explore if these reactions are consistent with the prediction of overreaction hypothesis or uncertain information hypothesis. Design/methodology/approach - Considering the day when the SEC filed the lawsuit against Binance as an unexpected event, we classify the price movements of a set of cryptos on the event day as either unexpected favorable news or unexpected unfavorable events. We examine whether the behavior of the prices of the crypto is consistent with the predictions of the overreaction hypothesis (OH) proposed by De Bondt and Thaler (1985) or the uncertain information hypothesis (UIH) suggested by Brownet al.(1988). Findings - The results suggest that the cryptocurrency markets faced a return volatility surge, no matter if investors regarded this event as favorable or unfavorable, and the markets’ responses are mixed. The results of supremum augmented Dickey−Fuller (SADF) and generalized SADF (GSADF) do not support the bubble behavior in selected cryptocurrency series. Research limitations/implications - The essential implication is that the action of the SEC had an evident impact on the volatility of cryptocurrency markets. This consequence should be seriously considered, as the role of the SEC in regulating the digital asset markets becomes more critical following the approval of the Bitcoin ETFs, early 2024. Originality/value - To the best of the authors’ knowledge, this is the first paper investigating the cryptocurrencies’ markets reactions to the SEC lawsuit against Binance. It sheds light to the market reactions using intraday data.

Suggested Citation

  • Seyed Mehdian & Ștefan Cristian Gherghina & Ovidiu Stoica, 2024. "The reaction of top cryptocurrencies to lawsuit against Binance: an intraday event study," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 42(3), pages 449-467, November.
    • Handle: RePEc:eme:sefpps:sef-08-2024-0521
    DOI: 10.1108/SEF-08-2024-0521
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    More about this item

    Keywords

    Cryptocurrency markets; Binance; Overreaction hypothesis; Uncertain information hypothesis; Event study; C58; G14; G15;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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