A study on the relationship between Crypto-currencies and official Indian foreign exchange rates

Abstract

This paper examines the relationship between Crypto-currencies (Bitcoin, Ethereum, Binance Coin, Litecoin) and Official Indian Currencies foreign exchange (USD, GBP, EURO, YEN) rates using daily data from 17-Dec-2019 to 17-Jun-21. A literature review was undertaken on current increase on the importance of cryptocurrencies and the relationship between Crypto-currencies and Indian Currencies foreign exchange rates(ICX). Statistical models of Correlation, Durbin–Watson (DW), multiple regression analysis is employed to establish their relationship. The author’s findings from the results that except for YEN with Ethereum and USD with Binance Coin & Litecoin there is absence of any significant relationship between ICX and Cryptocurrencies exchange rate. The outcome showed the occurrence of a significant positive relationship among Bitcoin with Ethereum and Binance Coin; Ethereum with Bitcoin and Binance Coin; Binance Coin with Litecoin and Litecoin with Binance Coin. Finally, the analysis found that because the USD and Litecoin have a negative association, the former can be used for hedging and diversification. The research also reveals that Indian foreign exchange markets have little impact on cryptocurrency markets, which could be attributed to the lack of legal recognition by government, which impacts public opinion, resulting in low public acceptability. Hopefully, the recent decision of the Supreme Court will act as a catalyst for dealing with cryptocurrencies and for promotion of crypto trade integration in India.