Bubbles and Crashes in Cryptocurrencies: Interdependence, Contagion, or Asset Rotation?
Posted: 11 Oct 2021 Last revised: 7 Aug 2023
Date Written: September 20, 2021
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. There is only limited evidence for asset rotation, and it involves mostly Ripple. Bubbles in Ripple occur simultaneously or are followed by crashes in other major cryptocurrencies which highlights its unique role as a portfolio diversifier in extreme market conditions.
Keywords: Cryptocurrencies, Interdependence, Contagion, Rotation, Bubbles; Crashes
JEL Classification: C32; F3; G15
Suggested Citation: Suggested Citation