Investor Reaction before and after Crypto Asset Taxation Announcements

Abstract

With increasing attention from institutional investors, crypto assets are now a synonym of Decentralized Finance characterized by extreme volatility and staggering growth. Several jurisdictions have been continuously trying to tax these peculiar assets since 2018: after seven years we will try to evaluate the market reaction to some of these policies. In this paper we will try to assess whether we can observe a trend in crypto asset prices after taxation announcements, and if changes in prices influence sentiment. To answer these questions, we first implemented a crypto event study following the methodology of Fama, French, Chokor and Alfieri, completed by a sentiment analysis using the VADER model. At the end of our study, we found evidence that taxation announcements trigger negative cumulative abnormal returns but also that sentiment has predictive power over aggregate price change and Bitcoin price change, despite not showing a significant trend after taxation announcements.