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A Fight-to-Safety from Bitcoin to Stock Markets:Evidence from Cyber Attacks

We discover a novel flight-to-safety effect from cryptocurrency markets to stock markets. It occurs after a series of hacking attacks on crypto exchanges as greater uncertainty heightens investors' risk awareness and perception, which, in turn, induces herd-like behaviour in favor of safer stock markets over riskier cryptocurrency markets. We extensively examine this effect worldwide across 39 countries and confirm this novelty. This effect is amplified when investors' risk awareness is strengthened by frequent attacks. Intriguingly, the sentiment elicited from the attacks discussed on social media not only serves as a timely warning indicator for the forthcoming attack events but also measures the flight-to-safety pressure after attack events. We conclude that the collapse of investors’ confidence is the primary cause of such an effect. Through the lens of cyber attacks, we document how a shock in crypto markets is transmitted into stock markets through investors' flight-to-safety behavior.