Abstract
The rapid development of cryptocurrencies has drawn attention to this particular market, with investors trying to understand its behaviour and researchers trying to explain it. The evolution of cryptocurrencies’ prices showed a kind of bubble and a crash at the end of 2017. Based on this event, and on the fact that Bitcoin is the most recognized cryptocurrency, we propose to evaluate the contagion effect between Bitcoin and other major cryptocurrencies. Using the Detrended Cross-Correlation Analysis correlation coefficient (ΔρDCCA) and comparing the period after and before the crash, we found evidence of a contagion effect, with this particular market being more integrated now than in the past—something that should be taken into account by current and potential investors.
Highlights
Cryptocurrencies are digital currencies which can be used for direct retail purchases and as financial assets in general
On the fact that Bitcoin is the most recognized cryptocurrency, we propose to evaluate the contagion effect between Bitcoin and other major cryptocurrencies
Using the Detrended Cross-Correlation Analysis correlation coefficient (∆ρDCCA) and comparing the period after and before the crash, we found evidence of a contagion effect, with this particular market being more integrated than in the past—something that should be taken into account by current and potential investors
Summary
Cryptocurrencies are digital currencies which can be used for direct retail purchases and as financial assets in general. Bitcoin itself was responsible for about 55% of that capitalization, being by far the most important cryptocurrency This evolution makes cryptocurrencies very interesting for investors, as well as for researchers, with a growing body of literature on several issues (Urquhart 2018; Corbet et al 2019). Despite the evolution of cryptocurrencies’ prices, during 2017 this market experienced a kind of bubble, with prices reaching maximum levels on 15 December 2017, followed by a sharp decrease With such an episode, and considering Bitcoin as the most relevant cryptocurrency, we can evaluate the possibility of a contagion effect in this market. The remainder of the work is organized as follows: Section 2 presents a literature review on work involving cryptocurrencies; Section 3 describes the methodology and data; Section 4 presents the results; Section 5 concludes the paper
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