The blockchain challenge: The impact of cryptocurrency heists on market trends and investor behaviour

Cryptocurrency heists have become an increasingly frequent and disruptive phenomenon, raising concerns about their broader impact on the cryptocurrency market. This thesis uses an event study approach, using various cryptocurrency heists as case studies to systematically examine the impact of cryptocurrency heists on the cryptocurrency market. The first study investigates the impact of cryptocurrency heists on Bitcoin’s market efficiency within the Adaptive Market Hypothesis (AMH) framework. Using permutation entropy and the Complexity–entropy causality plane, the study finds that Bitcoin’s efficiency declines significantly on and immediately after most major cryptocurrency heists, highlighting the impact of security breaches on Bitcoin market stability and further supporting the notion that Bitcoin market efficiency evolves in response to changes in the external environment. The second study examines the bidirectional predictive relationship between Bitcoin price and investor sentiment using the Cryptocurrency Fear & Greed Index (CFGI). A time-varying Granger causality analysis around the KuCoin exchange heist reveals that while no significant feedback loop exists before this heist, a strong sentiment-price interaction emerges afterwards. This intensified sentiment-price predictive relationship suggests that heightened uncertainty following a heist amplifies investor reactions, creating price declines and market panic. The third study extends the analysis to decentralised finance (DeFi), assessing liquidity shocks and spillover effects by low-frequency price impact measures and the Quantile VAR model from six major DeFi heists. Findings indicate that while affected platforms’ native DeFi tokens experience severe liquidity declines, spillover effects on mainstream DeFi tokens remain limited, suggesting some degree of DeFi market stability. This thesis contributes to the literature by demonstrating that cryptocurrency heists significantly impact market stability and investor behaviour. The findings emphasise the importance of robust security measures, crisis management, and governance improvements to mitigate risks in the cryptocurrency market.