Working Paper

Cyber-Attacks, Cryptocurrencies, and Cyber Security

Guglielmo Maria Caporale, Woo-Young Kang, Fabio Spagnolo, Nicola Spagnolo
CESifo, Munich, 2020

CESifo Working Paper No. 8124

This paper provides comprehensive evidence on the effects of cyber-attacks (cyber-crime, cyber espionage, cyber warfare and hacktivism) and cyber security on the risk-adjusted returns, realised volatilities and trading volumes of the three main cryptocurrencies (Bitcoin, Ethereum and Litecoin). We find that stronger cyber security is generally effective in increasing the risk-adjusted returns of cryptocurrencies and trading activity even in the presence of cyber-attacks. Hacktivism appears to be the most significant threat to cryptocurrency investors. Further, cyber-attackers hitting the cryptocurrency exchanges are most likely to attack other sectors (government, industry and finance) as well. In addition, in the case of the US they target the government and industry sectors in preference to the cryptocurrency exchanges given the corresponding potential benefits and costs. In all cases appropriate strategies should be designed to enhance cyber security.

CESifo Category
Monetary Policy and International Finance
Empirical and Theoretical Methods
Keywords: cyber-attacks, cryptocurrencies, risk-adjusted returns, cyber security
JEL Classification: C220, E400, G100