Sharp volatility in the cryptocurrency market and its response to shocks

Abstract

The study aims to explore the extent of correlation between cryptocurrencies through cointegration in the cryptocurrency market, in order to understand the degree of synchronization and interrelation between these currencies, as well as their response to shocks and the transmission of crises among them. The study relies on monthly data for three cryptocurrencies: Ethereum, Bitcoin, and Tether, during the period from May 2017 to June 2024, using Johansen's cointegration models, the VAR model, and Granger causality test. The most important results of this study were that the studied series of the three currencies during the studied period are integrated of the first degree (I(1), and that there is no co-integration between them, which means the absence of causality in the short and long term. The dynamically stable VAR model also showed the absence of causality in both directions. Among these cryptocurrencies, which reinforces the idea of their independence and not being affected by shocks and reflects the large volatility that characterize them