Crypto’s big break? Market reactions to SEC endorsement

Purpose The study aims to analyze the impact of US Securities and Exchange Commission's (SEC) approval for the Bitcoin-based exchange-traded fund on the cryptocurrency market. Are these regulatory approvals pertinent for investors, signal acceptance of cryptocurrencies and symmetrical across all cryptocurrencies? Design/methodology/approach Using the cumulative abnormal return methodology as an event study approach, we test the impact of SEC approval on the investor’s trust in the cryptocurrency arena. The estimation window spans from December 20, 2022, to February 09, 2024, with 301 daily observations. We use the top 20 cryptocurrencies by market capitalization and the Bloomberg Galaxy Cryptocurrency Index as a benchmark to assess the performance immediately after the announcement of SEC approval of Bitcoin-based ETFs. Findings While mature cryptocurrencies with higher market capitalization had a short-lived or negligible impact as indicated by abnormal returns, emerging cryptocurrencies experienced long-term and persistent abnormal returns. The findings can be explained using the Investor Attention and Information Diffusion (IAID) theory, which states that investors respond differently to assets with different popularity. Investors respond swiftly to highly visible assets (mature cryptos) and slowly to lesser-known assets (emerging cryptocurrencies). Originality/value The study extends IAID theory to the context of positive policy interventions and their impact on cryptocurrencies. Furthermore, this research highlights the asymmetrical response of such interventions on different cryptocurrencies based on their market capitalization and visibility in the market.