Bubbles and Crashes in Cryptocurrencies: Interdependence, Contagion, or Asset Rotation?
School of Business
Using a quantile vector autoregressive model to capture return dynamics in extreme market conditions, we find that the cryptocurrency market exhibits a high level of market connectedness. Bitcoin is a net transmitter of return spillovers during busts and a net receiver during booms. Analysis of the timing of bubble and crash periods uncovers the presence of interdependence and contagion effects. Asset dynamics is driven to a great extent by the technology, in particular the consensus protocol of cryptocurrencies. There is only limited evidence for asset rotation, and it involves mostly Ripple.
Chowdhury, M. S. R. and Damianov, D. S. and Elsayed, A.Hamed, Bubbles and crashes in cryptocurrencies: Interdependence, contagion, or asset rotation? Finance Research Letters, 46, Part B: 102494. doi: 10.1016/j.frl.2021.102494