Cryptocurrency Reaction to FOMC Announcements: Evidence of Heterogeneity Based on Blockchain Stack Position
39 Pages Posted: 21 Nov 2017
Date Written: November 18, 2017
This paper looks beyond the world of competing cryptocurrencies and the growing number of digital assets. We examine the reaction of a broad set of digital assets to US Federal Fund interest rate and quantitative easing announcements and the volatility spillover and feedback effects generated as a result. We classify each digital asset into one of three categories: Currencies; Protocols; and Decentralised Applications (dApps). Currency-based digital assets experience idiosyncratic spillovers in the period immediately after US monetary policy announcements, while application or protocol-based digital assets are largely immune to policy volatility spillover and feedback. Mineable digital assets are found to be more susceptible to monetary policy volatility spillovers and feedback than non-mineable. Currencies experience an increase, while Protocols experience a decrease and dApps remain immune to any global systematic volatility spillover transfers and feedback effects. Responses indicate a diverse market in which all assets are not comparable to Bitcoin.
Keywords: Cryptocurrencies; Digital Assets; Bitcoin; Litecoin; GARCH; Volatility Spillovers; Volatility Feedback; Monetary Policy
JEL Classification: E43; G12; L17
Suggested Citation: Suggested Citation