Abstract

This study examines the relationship between cryptocurrencies and foreign exchange markets for three digital currencies and six fiat currencies using the quantile on quantile (QQ) regression approach of Sim and Zhou (2015). According to the QQ technique, we estimate how the quantiles of cryptocurrencies affect the foreign exchange market quantiles. It provides a broader view of the entire dependence structure between the forex markets and digital currencies than traditional methods. Our empirical analysis indicates a positive connection between foreign exchange currencies and cryptocurrencies for all nine currencies, particularly Bitcoin, at low, high, and middle tail quantiles. However, differences are present between economies and across quantiles of virtual currencies and fiat currencies for each economy. This heterogeneity is due to variations in economic structure, legal recognition by governments, associated risk, and monetary or macroeconomic policy changes that affect the trading of cryptocurrencies and fiat currencies.

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