Cryptocurrency fraud and its effects on price volatility in the cryptocurrency market

Purpose This study aims to examine the effect of cryptocurrency frauds on the price fluctuations of the cryptocurrency market. Design/methodology/approach To examine the effects of cryptocurrency frauds on cryptocurrency market, the authors have collected data of 38 cryptocurrencies price fluctuations between 01/01/2020 and 28/11/2021. The authors have used the multidimensional scaling method (MDS) to explore the price fluctuations of the cryptocurrency market and its relationship with the cryptocurrency market between 2020 and 2021. Findings The study results showed that even though cryptocurrencies are categorised into Bitcoin, Altcoins and Stablecoins, the effect of the frauds is specific to their usage cases. Bitcoin and certain Altcoins were affected in a certain way compared to Ethereum and cryptocurrencies specialised in smart contracts. Cryptocurrencies such as Tron and Elrond with the specifications of staking had a different reaction and cryptocurrencies that contribute to the development and enhancement of blockchain infrastructure had a different reaction throughout these incidents. Stablecoins, however, were unaffected by the fraud incidents because of their reliability and their correlation to real assets such as fiat money, petrol and gold. Practical implications The study enables financial institutions to understand how to react to cryptocurrencies, which are both an opportunity and a challenge for them. Consequently, banks should strengthen their security measures to protect customer funds from the risks associated with fraud and cyber-attacks. They should also implement risk management measures and guarantee the integrity of their systems to ensure stability and confidence in the use of cryptocurrencies. In addition, institutions should work in collaboration with the authorities to overcome regulatory challenges and create a favourable framework for the use of cryptocurrencies. Originality/value The main contribution of this paper is to examine this topic, which has been very little explored in previous work. The lack of theoretical and empirical evidence concerning this study represented a challenge, and an originality as studies concerning cryptocurrency fraud are limited, if not non-existent. The second contribution is quantitative and uses a MDS to examine price fluctuations in the cryptocurrency market and its relationship with the cryptocurrency market.