We analyse, in the time and frequency domains, the relationships between three popular cryptocurrencies and a variety of other financial assets. We find evidence of the relative isolation of these assets from the financial and economic assets. Our results show that cryptocurrencies may offer diversification benefits for investors with short investment horizons. Time variation in the linkages reflects external economic and financial shocks.
We analyse, in the time and frequency domains, the relationships between three popular cryptocurrencies and a variety of other financial assets. We find evidence of the relative isolation of these assets from the financial and economic assets. Our results show that cryptocurrencies may offer diversification benefits for investors with short investment horizons. Time variation in the linkages reflects external economic and financial shocks.
We examine the response of a broad set of digital assets to US Federal Fund interest rate and quantitative easing announcements, specifically examining associated volatility spillover and feedback effects. We classify each digital asset into one of three categories: Currencies; Protocols; and Decentralised Applications (dApps). Currency-based digital assets experience idiosyncratic spillovers in the period immediately after US monetary policy announcements, while application or protocolbased digital assets are largely immune to policy volatility spillover and feedback. Mineable digital assets are found to be more susceptible to monetary policy volatility spillovers and feedback than non-mineable. Responses indicate a diverse market within which, not all assets are comparable to Bitcoin.
This paper examines the relationship between news coverage and Bitcoin returns. Previous studies have provided evidence to suggest that macroeconomic news affects stock returns, commodity prices and interest rates. We construct a sentiment index based on news stories that follow the announcements of four macroeconomic indicators: GDP, unemployment, Consumer Price Index (CPI) and durable goods. By controlling for a number of potential biases we determine as to whether each of the series' have a significant impact on Bitcoin returns.While an increase in positive news surrounding unemployment rates and durable goods would typically result in a corresponding increase in equity returns, we observe the opposite to be true in the case of Bitcoin. Increases in positive news after unemployment and durable goods announcements result in a decrease in Bitcoin returns. Conversely, an increase in the percentage of negative news surrounding these announcements is linked with an increase in Bitcoin returns. News relating to GDP and CPI are found not to have any statistically significant relationships with Bitcoin returns. Our results indicate that this developing cryptocurrency market is further maturing through interactions with macroeconomic news.
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