Abstract
Based on the high-frequency recordings from Kraken, a cryptocurrency exchange and professional trading platform that aims to bring Bitcoin and other cryptocurrencies into the mainstream, the multiscale cross-correlations involving the Bitcoin (BTC), Ethereum (ETH), Euro (EUR) and US dollar (USD) are studied over the period between 1 July 2016 and 31 December 2018. It is shown that the multiscaling characteristics of the exchange rate fluctuations related to the cryptocurrency market approach those of the Forex. This, in particular, applies to the BTC/ETH exchange rate, whose Hurst exponent by the end of 2018 started approaching the value of 0.5, which is characteristic of the mature world markets. Furthermore, the BTC/ETH direct exchange rate has already developed multifractality, which manifests itself via broad singularity spectra. A particularly significant result is that the measures applied for detecting cross-correlations between the dynamics of the BTC/ETH and EUR/USD exchange rates do not show any noticeable relationships. This could be taken as an indication that the cryptocurrency market has begun decoupling itself from the Forex.
Highlights
When Satoshi Nakamoto proposed the cryptocurrency Bitcoin (BTC) based on peer-to-peer network and encryption techniques [1] in 2008, the blockchain technology was born
The data set used in the present study consists of the exchange rates reflecting the actual trade involving the Bitcoin (BTC), Ethereum (ETH), Euro (EUR) and US dollar (USD)
Consistent decay following, to a good approximation, a power law of the form C(τ) ∼ exp(−γ) with γ ≈ 0.2 is observed, but this kind of a decay clearly ends at about an order of magnitude lower τ for the EUR/USD exchange rate compared to the other exchange rates, involving either the BTC or the ETH
Summary
When Satoshi Nakamoto proposed the cryptocurrency Bitcoin (BTC) based on peer-to-peer network and encryption techniques [1] in 2008, the blockchain technology was born. The idea behind this was providing, for the first time in human history, a tool thanks to which people anywhere could entrust each other and transact within an extensive network not requiring centralized management. It allows anyone to create decentralized applications and own tokens by using smart contracts on the network This capability provided the ground for the Initial Coin Offer (ICO) mania in 2017, which led to bubble engulfing the entire cryptocurrency market and eventually bursting in January 2018. A speculation is put forward that the future may bring their closer integration, leading to the emergence of a marketplace more closely resembling, in terms of its statistical features, the established currency Forex market
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