One Size Does Not Fit All: External Driver of The Cryptocurrency World

Studies in Economics and Finance, 2020

Posted: 28 Jul 2020

See all articles by Yaman O. Erzurumlu

Yaman O. Erzurumlu

Bahcesehir University; Babson College

Tunc Oygur

bFinancial Economics Programme, Yeditepe University

Alper Kirik

Yeditepe University

Date Written: June 30, 2020


Purpose – Considering the different motivations for the creation of each of these cryptocurrencies, the purpose of this paper is to examine whether there is a dominant external factor in the cryptocurrency world. Using a novel two-step time and frequency independent methodology, the authors examine a large scope of cryptocurrencies and external factors within the same period and analytical framework.

Design/methodology/approach – The examined cryptocurrencies are Bitcoin, Ethereum, Ripple,
Litecoin, Monero, and Dash. In total, 18 external factors from 5-factor families are selected based on the mining motivation of these cryptocurrencies. The study first examines discrete wavelet transform-based (WTB) correlations, reduces the dimension, and focus on relevant pairs. Selected pairs are further examined by wavelet coherence to capture the intermittent nature of the relationships allowing the most needed “Flexibility of frequency and time domains”.

Findings – Each coin appears to operate as a unique character with the exception of Bitcoin and Litecoin. There is no prominent external driver. The cryptocurrency market is not a clear substitute for a specific factor or market. Two-step WTB filtered wavelet coherence analysis help us to analyze a large number of factor without the loss of focus. The co-movements within the cryptocurrencies spillover from Ethereum to altcoins and later to Bitcoin.

Originality/value – The study presents one of the first examples of two-step WTB filtered wavelet coherence analysis. The methodology suggests an approach for the simultaneous examination of a large number of variables. The scope of the study provides a rather holistic view of the co-movements of external factors and major cryptocurrencies.

Keywords: Cryptocurrency, Bitcoin, Ethereum, Altcoin, Wavelet correlation, Wavelet coherence

JEL Classification: C23, F36, F65, G15, G2

Suggested Citation

Erzurumlu, Yaman O. and Oygur, Tunc and Kirik, Alper, One Size Does Not Fit All: External Driver of The Cryptocurrency World (June 30, 2020). Studies in Economics and Finance, 2020, Available at SSRN:

Yaman O. Erzurumlu (Contact Author)

Bahcesehir University ( email )

Ciragan Avenue Osmanpaşa Mektebi Sokak No: 4 - 6
Istanbul, 34353

Babson College ( email )

231 Forest St.
Babson Park, MA 02457-0310
United States

Tunc Oygur

bFinancial Economics Programme, Yeditepe University ( email )


Alper Kirik

Yeditepe University ( email )

81120 Kayisdagi, Istanbul

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