Universalities in the Dynamics of Cryptocurrencies: Stability, Scaling and Size

34 Pages Posted: 19 Jan 2021

See all articles by Andrey Pogudin

Andrey Pogudin

King's College London

Anindya S. Chakrabati

Indian Institute of Management (IIM), Ahmedabad

Tiziana Di Matteo

King's College London

Date Written: February 8, 2020

Abstract

Cryptocurrencies represent an asset class featuring two unique properties: they are not backed by sovereigns, and their supply is fixed exogenously. This combination becomes apparent in their volatility, which is driven only by demand-side factors. In particular, cryptocurrencies represent an extreme case of the excess volatility puzzle, with asset prices moving more than the fundamentals. We explore the effects of market capitalization on the dynamics of cryptocurrencies within both returns and volatility networks and show that these cryptocurrencies exhibit scaling properties in volatility with respect to market capitalization. The dependency network suggests that currencies with a larger market share have a larger presence in the dominant eigenspectrum, and they exert more influence in the co movement network. In these regards, we find parallels between the dynamics of cryptocurrencies and those of more traditional asset classes. Our findings have implications for both researchers and practitioners in terms of modeling and analyzing the collective behavior of financial assets.

Keywords: cryptocurrency, Bitcoin, blockchain, network, volatility, stability, scaling

Suggested Citation

Pogudin, Andrey and Chakrabati, Anindya S. and Di Matteo, Tiziana, Universalities in the Dynamics of Cryptocurrencies: Stability, Scaling and Size (February 8, 2020). Journal of Network Theory in Finance, Vol. 5, No. 4, 2019, Available at SSRN: https://ssrn.com/abstract=3768664

Andrey Pogudin (Contact Author)

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

Anindya S. Chakrabati

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Tiziana Di Matteo

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

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