Are cryptocurrencies becoming more interconnected?

Aslanidis, Nektarios; Bariviera, Aurelio F.; Pérez-Laborda, Alejandro

doi:10.1016/j.econlet.2021.109725

Cited by 52 publications

(30 citation statements)

References 23 publications

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“…In line with the previous studies (Aslanidis et al, 2020;Iqbal et al, 2021), we found that the volatility connectedness among cryptocurrencies markedly intensifies, particularly after March 11, 2020, which coincides with the official announcement of the COVID-19 pandemic. This result is probably because of the herding behavior in the cryptocurrency market.…”

Section: Discussionsupporting

confidence: 92%

“…Overall spillover indexes dramatically plummeted till January 2019 and reached their troughs (54.04%, 57.81% and 57.81%, respectively). In line with the finding in Aslanidis et al (2020), after slightly surging to their average levels, the indexes skyrocketed in March, 2020 with the official announcement of COVID-19 as a pandemic by the World Health Organization (WHO) and they surpassed 90%.…”

Section: Overall Spillover Indexsupporting

confidence: 64%

“…examined connectedness between nine major cryptocurrencies by implementing a time varying parameterfactor augmented vector autoregression connectedness method between August 8, 2015 and May 31, 2018. The study found that the total connectedness between various cryptocurrencies fluctuates between 25% and 75% over the analyzed period Aslanidis et al (2020). analyzed return and volatility connectedness among 17 major cryptocurrencies by means of their market capitalization by implementing the DY approach.…”

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confidence: 99%

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Cryptocurrency connectedness nexus the COVID-19 pandemic: evidence from time-frequency domains

Polat

GÜNAY

2021

SEF

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Purpose The purpose of this study is to investigate volatility connectedness between major cryptocurrencies by the virtue of market capitalization. In this context, this paper implements the frequency connectedness approach of Barunik and Krehlik (2018) and to measure short-, medium- and long-term connectedness between realized volatilities of cryptocurrencies. Additionally, this paper analyzes network graphs of directional TO/FROM spillovers before and after the announcement of the COVID-19 pandemic by the World Health Organization. Design/methodology/approach In this study, we examine the volatility connectedness among eight major cryptocurrencies by the virtue of market capitalization by using the frequency connectedness approach over the period July 26, 2017 and October 28, 2020. To this end, this paper computes short-, medium- and long-cycle overall spillover indexes on different frequency bands. All indexes properly capture well-known events such as the 2018 cryptocurrency market crash and COVID-19 pandemic and markedly surge around these incidents. Furthermore, owing to notably increased volatilities after the official announcement of the COVID-19 pandemic, this paper concentrates on network connectedness of volatility spillovers for two distinct periods, July 26, 2017–March 10, 2020 and March 11, 2020–October 28, 2020, respectively. In line with the related studies, major cryptocurrencies stand at the epicenter of the connectedness network and directional volatility spillovers dramatically intensify based on the network analysis. Findings Overall spillover indexes have fluctuated between 54% and 92% in May 2018 and April 2020. The indexes gradually escalated till November 9, 2018 and surpassed their average values (71.92%, 73.66% and 74.23%, respectively). Overall spillover indexes dramatically plummeted till January 2019 and reached their troughs (54.04%, 57.81% and 57.81%, respectively). Etherium catalyst the highest sum of volatility spillovers to other cryptocurrencies (94.2%) and is followed by Litecoin (79.8%) and Bitcoin (76.4%) before the COVID-19 announcement, whereas Litecoin becomes the largest transmitter of total volatility (89.5%) and followed by Bitcoin (89.3%) and Etherium (88.9%). Except for Etherium, the magnitudes of total volatility spillovers from each cryptocurrency notably increase after – COVID-19 announcement period. The medium-cycle network topology of pairwise spillovers indicates that the largest transmitter of total volatility spillover is Litecoin (89.5%) and followed by Bitcoin (89.3%) and Etherium (88.9%) before the COVID-19 announcement. Etherium keeps its leading role of transmitting the highest sum of volatility spillovers (89.4%), followed by Bitcoin (88.9%) and Litecoin (88.2%) after the COVID-19 announcement. The largest transmitter of total volatility spillovers is Etherium (95.7%), followed by Litecoin (81.2%) and Binance Coin (75.5%) for the long-cycle connectedness network in the before-COVID-19 announcement period. These nodes keep their leading roles in propagating volatility spillover in the latter period with the following sum of spillovers (Etherium-89.5%, Bitcoin-88.9% and Litecoin-88.1%, respectively). Research limitations/implications The study can be extended by including more cryptocurrencies and high-frequency data. Originality/value The study is original and contributes to the extant literature threefold. First, this paper identifies connectedness between major cryptocurrencies on different frequency bands by using a novel methodology. Second, this paper estimates volatility connectedness between major cryptocurrencies before and after the announcement of the COVID-19 pandemic and thereby to concentrate on its impact on the cryptocurrency market. Third, this paper plots network graphs of volatility connectedness and herewith picture the intensification of cryptocurrencies due to a major financial distress event.

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Section: Discussionsupporting

confidence: 92%

Section: Overall Spillover Indexsupporting

confidence: 64%

mentioning

confidence: 99%

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Cryptocurrency connectedness nexus the COVID-19 pandemic: evidence from time-frequency domains

Polat

GÜNAY

2021

SEF

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“…On the other hand, one of the interesting facts about the cryptocurrency market’s inner structure is that, unlike other financial markets where, typically, the highly capitalized assets have spillover effects on the less capitalized ones, here the less capitalized assets are able to influence the evolution of the highly capitalized ones. This can lead to more a complex structure than a typical structure of the other markets, where causality is unidirectional [ 42 , 43 , 44 , 45 ].…”

Section: Introductionmentioning

confidence: 99%

Cryptocurrency Market Consolidation in 2020–2021

Kwapień

Wątorek

Dróżdż

2021

Entropy

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Time series of price returns for 80 of the most liquid cryptocurrencies listed on Binance are investigated for the presence of detrended cross-correlations. A spectral analysis of the detrended correlation matrix and a topological analysis of the minimal spanning trees calculated based on this matrix are applied for different positions of a moving window. The cryptocurrencies become more strongly cross-correlated among themselves than they used to be before. The average cross-correlations increase with time on a specific time scale in a way that resembles the Epps effect amplification when going from past to present. The minimal spanning trees also change their topology and, for the short time scales, they become more centralized with increasing maximum node degrees, while for the long time scales they become more distributed, but also more correlated at the same time. Apart from the inter-market dependencies, the detrended cross-correlations between the cryptocurrency market and some traditional markets, like the stock markets, commodity markets, and Forex, are also analyzed. The cryptocurrency market shows higher levels of cross-correlations with the other markets during the same turbulent periods, in which it is strongly cross-correlated itself.

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“…In a more recent paper, Aslanidis et al [8] documented that the cryptocurrency market experienced a strong overall increase in the connectedness both in terms of returns and volatility. In most cases over the period 2015-2020, shocks were transmitted to the other cryptocurrencies and had a short-term effect on the returns.…”

Section: Literature Reviewmentioning

confidence: 99%

Is Bitcoin Still a King? Relationships between Prices, Volatility and Liquidity of Cryptocurrencies during the Pandemic

Będowska-Sójka

Kliber

Rutkowska

2021

Entropy

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We try to establish the commonalities and leadership in the cryptocurrency markets by examining the mutual information and lead-lag relationships between Bitcoin and other cryptocurrencies from January 2019 to June 2021. We examine the transfer entropy between volatility and liquidity of seven highly capitalized cryptocurrencies in order to determine the potential direction of information flow. We find that cryptocurrencies are strongly interrelated in returns and volatility but less in liquidity. We show that smaller and younger cryptocurrencies (such as Ripple’s XRP or Litecoin) have started to affect the returns of Bitcoin since the beginning of the pandemic. Regarding liquidity, the results of the dynamic time warping algorithm also suggest that the position of Monero has increased. Those outcomes suggest the gradual increase in the role of privacy-oriented cryptocurrencies.

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Are cryptocurrencies becoming more interconnected?

Cited by 52 publications

References 23 publications

Cryptocurrency connectedness nexus the COVID-19 pandemic: evidence from time-frequency domains

Cryptocurrency connectedness nexus the COVID-19 pandemic: evidence from time-frequency domains

Cryptocurrency Market Consolidation in 2020–2021

Is Bitcoin Still a King? Relationships between Prices, Volatility and Liquidity of Cryptocurrencies during the Pandemic

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