What drives Bitcoin’s price crash risk?

Kalyvas, Antonios Nikolaos; Papakyriakou, Panayiotis; Σάκκας, Αθανάσιος; Urquhart, Andrew

doi:10.1016/j.econlet.2019.108777

Cited by 64 publications

(33 citation statements)

References 29 publications

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“…In this paper, we focus on value at risk (VaR) and the related conditional value at risk (CVAR), also referred to as expected shortfall, to measure potential losses in a portfolio over a given time horizon (Conlon and Cotter, 2013). While other measures of crash risk have also been proposed in the context of cryptocurrencies (Kalyvas et al, 2019), the methods detailed here are appropriate for frequently examined horizons of importance to investors.…”

Section: Downside Risk Measurementmentioning

confidence: 99%

Are Cryptocurrencies a Safe Haven for Equity Markets? An International Perspective from the COVID-19 Pandemic

2020

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The COVID-19 pandemic provided the first widespread bear market conditions since the inception of cryptocurrencies. We test the widely mooted safe haven properties of Bitcoin, Ethereum and Tether from the perspective of international equity index investors. Bitcoin and Ethereum are not a safe haven for the majority of international equity markets examined, in fact increasing portfolio downside risk. Only investors in the Chinese CSI 300 index realized modest downside risk benefits, but only from small relative allocations to Bitcoin or Ethereum. As Tether successfully maintained its peg to the US dollar during the COVID-19 turmoil, it acted as a safe haven investment for all of the international indices examined. We caveat the latter findings with a warning that this dollar peg has not always been maintained, impairing the earlier downside risk hedging properties of Tether.

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Section: Downside Risk Measurementmentioning

confidence: 99%

Are Cryptocurrencies a Safe Haven for Equity Markets? An International Perspective from the COVID-19 Pandemic

2020

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“…Recent studies differ in the econometric methodologies proposed to study the dynamics of the cryptocurrencies and also on the set of factors used to rationalise its behaviour. We highlight important contributions by Ciaian et al (2015), Hayes (2017), Kristoufek (2015), Polasik, Piotrowska, Wisniewski, Kotkowski, and Lightfoot (2015), Zhu, Dickinson, and Li (2017), Blau (2017), Zhang, Wang, Li, and Shen (2018), Bouri, Gupta, Lahiani, and Shahbaz (2018), Jareno, Gonzales, Tolentino, and Sierra (2020) and Kalyvas, Papakyriakou, Sakkas, and Urquhart (2020). These authors use a variety of econometric models such as OLS, VECM, Wavelet Analysis, IV Estimation, GARCH and MF‐DCCA models and consider market and technical variables to explain the dynamics of cryptocurrencies.…”

Section: Literature Reviewmentioning

confidence: 99%

Analysis of Bitcoin prices using market and sentiment variables

Kapar

Olmo

2020

World Economy

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There is an emerging empirical stream of literature that has attempted to explain the mechanisms behind cryptocurrency pricing and, in particular, Bitcoin. This paper belongs to this recent tradition; however, in contrast to most empirical studies on the dynamics of the cryptocurrency, we focus on uncovering its efficient price. Informally, the efficient price can be interpreted as an average price that reflects the long-run dynamics of the price after removing short-term fluctuations due to market noise, outliers or the occurrence of other transitory disruptions in the market. The contribution of this paper is twofold. First, we identify the long-run relationship between Bitcoin and a set of variables with power to explain the dynamics of the cryptocurrency. This is done applying cointegration methods. If Bitcoin is cointegrated with any of the other variables considered, it implies that there is a long-run relationship between them. This can be used by investors to make strategic trading decisions. When there is a deviation from the long-run equilibrium, investors can act on that in the belief that it will return to the long-run equilibrium. The second contribution is to explore the factors with ability to explain the efficient Bitcoin price. More formally, we define the efficient Bitcoin price as the permanent component of the cryptocurrency log-price obtained from the permanent-transitory (P-T) decomposition proposed in Gonzalo and Granger (1995). To the best of our knowledge, this is the first paper that identifies the efficient price of Bitcoin by applying the permanent-transitory (P-T) decomposition proposed by these authors. Our empirical strategy is based on estimating a vector error correction model (VECM), see Johansen (1988, 1991), to assess the long-run relationship between the Bitcoin spot price and a set of financial, economic and sentiment variables. Motivated by the empirical literature exploring the determinants of Bitcoin and also by the properties of cryptocurrencies, we entertain the following 46 | KAPAR And OLMO variables: (a) the S&P 500 index capturing the performance of financial markets, (b) the price of gold, a commodity with investment properties similar to those characterising Bitcoin, (c) Google Search as a variable that quantifies the entries in the Google engine associated to Bitcoin, in particular, and cryptocurrencies, in general, and (d) a fear index proxied by the FED Financial Stress Index that captures market sentiment. The VECM specification is applied to two overlapping periods characterised by very different dynamics. A first period considering data up to January 2018, and a second period that considers data up to May 2019 characterised by a steep decline in the Bitcoin price and a slow recovery. The findings of our empirical study are in stark contrast across periods. For the first period, we find strong positive comovements between the dynamics of Bitcoin price and online interest in the cryptocurrency measured by Google searches. The other factor with a positive relatio...

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“…Several authors demonstrated that these cryptocurrencies act as hedge against economic policy risk. In current strand, several studies concluded that cryptocurrencies act as hedge and safe haven (Bouri et al 2017b(Bouri et al , 2017c(Bouri et al , 2017d(Bouri et al , 2020aBouri and Gupta 2019;Chen et al 2021;Cheng and Yen 2020;Colon et al 2021;Fang et al 2020;Fasanya et al 2021;Jiang et al 2021;Kalyvas et al 2020;Koumba et al 2020;Matkovskyy et al 2020 Rubbaniy et al 2021;Wu et al 2019Wu et al , 2021Cheng and Yen 2020;Yen and Cheng 2021). In contrast, cryptocurrencies do not act as hedge or safe-haven for economic policy uncertainty (Cheema et al 2020;Fasanya et al 2021;Hasan et al 2021;Jiang et al 2021;Lucey et al 2021;Wu et al 2019).…”

Section: Discussionmentioning

confidence: 99%

“…Purposefully, our research aims to study the undiscovered phenomena of other cryptocurrencies to ensure whether the losing dominance of Bitcoin (Corbet et al 2018b;Katsiampa et al 2019) in the cryptocurrency market unlocks the abilities of other uppermost cryptocurrencies Bitcoin, Ethereum, XRP, Bitcoin Cash, and Litecoin). (Kalyvas et al 2020) documented the behavioral aspect of Bitcoin investors and Bitcoin price crash uncertainty with economic policy uncertainty. Particularly, the association of Bitcoin price crash risk and economic policy uncertainty demonstrated a strong negative correlation pattern.…”

Section: Role Of Cryptocurrencies For Country Epusmentioning

confidence: 99%

“…While talking about the global financial crisis, the Eurozone serial crisis, and other events of higher uncertainty (Baker et al 2016) argued that fears and worries about policy uncertainty intensified in awakening a sharp economic downfall between 2008-2009. Particularly, in higher periods of economic uncertainty, either investors restrict their investments, wait for current conditions to be settled down, or look to find suitable strategies to mitigate uncertainty around the globe. Interestingly, the cryptocurrency market appeared as a risk management tool for the domestic and international investors of stock and commodity markets around the globe, particularly during the period of higher uncertain events (Akhtaruzzaman et al 2021a(Akhtaruzzaman et al , 2021bAl Mamun et al 2020;Ariefianto 2020;Bouri et al 2017aBouri et al , 2017bBouri et al , 2020bBouri et al , 2017cBouri et al , 2017dBouri et al , 2018Bouri and Gupta 2019;Cheema et al 2020;Chen et al 2021;Colon et al 2021;Demir et al 2018;Fang et al 2020;Fasanya et al 2021;Haq et al 2021;Hasan et al 2021;Jiang et al 2021;Kalyvas et al 2020;Nguyen 2020;Koumba et al 2020;Lucey et al 2021;Matkovskyy et al 2020;Mokni et al 2020;Nie et al 2020;Papadamou et al 2021;Park and Chai 2020;Paule-Vianez et al 2020;Wang et al 2019b;Qin et al 2021;Raheem 2021;Rubbaniy et al 2021;Wang ...…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Economic Policy Uncertainty and Cryptocurrency Market as a Risk Management Avenue: A Systematic Review

Haq

Maneengam

Chupradit

et al. 2021

Risks

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Cryptocurrency literature is increasing rapidly nowadays. Particularly, the role of the cryptocurrency market as a risk management avenue has got the attention of researchers. However, it is an immature asset class and requires gaps in current literature for future research directions. This research provides a systematic review of the vast range empirical literature based on the cryptocurrency market as a risk management avenue against economic policy uncertainty (EPU). The review discovers that cryptocurrencies have mixed connectedness patterns with all national EPU therefore, the risk mitigation ability varies from country to country. The review finds that heterogeneous correlation patterns are due to the dependence of EPU on the policies and decisions usually taken by regulatory authorities of a particular country. Additionally, heterogeneous EPU requires heterogeneous solutions to deal with stock market volatility and economic policy uncertainty in different economies. Likewise, the divergent protocol and administration of currencies in the crypto market consequently vicissitudes the hedging and diversification performance against each economy. Many research lines can benefit investors, policymakers, fund managers, or portfolio managers. Therefore, the authors suggested future research avenues in terms of topics, data frequency, and methodologies.

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What drives Bitcoin’s price crash risk?

Cited by 64 publications

References 29 publications

Are Cryptocurrencies a Safe Haven for Equity Markets? An International Perspective from the COVID-19 Pandemic

Are Cryptocurrencies a Safe Haven for Equity Markets? An International Perspective from the COVID-19 Pandemic

Analysis of Bitcoin prices using market and sentiment variables

Economic Policy Uncertainty and Cryptocurrency Market as a Risk Management Avenue: A Systematic Review

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