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

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 Brown et 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.