Complexity in Economic and Social Systems: Cryptocurrency Market at around COVID-19

Abstract

Social systems are characterized by an enormous network of connections and factors that can influence the structure and dynamics of these systems. Among them the whole economical sphere of human activity seems to be the most interrelated and complex. All financial markets, including the youngest one, the cryptocurrency market, belong to this sphere. The complexity of the cryptocurrency market can be studied from different perspectives. First, the dynamics of the cryptocurrency exchange rates to other cryptocurrencies and fiat currencies can be studied and quantified by means of multifractal formalism. Second, coupling and decoupling of the cryptocurrencies and the conventional assets can be investigated with the advanced cross-correlation analyses based on fractal analysis. Third, an internal structure of the cryptocurrency market can also be a subject of analysis that exploits, for example, a network representation of the market. In this work, we approach the subject from all three perspectives based on data from a recent time interval between January 2019 and June 2020. This period includes the peculiar time of the Covid-19 pandemic; therefore, we pay particular attention to this event and investigate how strong its impact on the structure and dynamics of the market was. Besides, the studied data covers a few other significant events like double bull and bear phases in 2019. We show that, throughout the considered interval, the exchange rate returns were multifractal with intermittent signatures of bifractality that can be associated with the most volatile periods of the market dynamics like a bull market onset in April 2019 and the Covid-19 outburst in March 2020. The topology of a minimal spanning tree representation of the market also used to alter during these events from a distributed type without any dominant node to a highly centralized type with a dominating hub of USDT. However, the MST topology during the pandemic differs in some details from other volatile periods.

Time-varying properties of asymmetric volatility and multifractality in Bitcoin

“…Further studies [ 66 , 67 ] also indicate the change of the tail index to 3. It is also worth noting that the recent COVID-19 pandemic considerably affects the cryptocurrency market and as a result the market experiences a volatile period in which the tail index varies [ 13 ].…”

“…market and as a result the market experiences a volatile period in which the tail index varies [13].…”

“…In recent years, Bitcoin has attracted interest of many researchers. Various aspects of Bitcoin, including hedging capabilities [ 2 ], bubbles [ 3 ], liquidity and efficiency [ 4 ], Taylor effect [ 5 ], structural breaks [ 6 ], transaction activity [ 7 ], complexity synchronization [ 8 ], long memory effects [ 9 ], price clustering [ 10 ], rough volatility [ 11 ] power-law cross-correlation [ 12 ], market structure [ 13 ] have been investigated.…”

Breakpoint Analysis for the COVID-19 Pandemic and Its Effect on the Stock Markets

“…These measures can affect the stock market value of the companies belonging to the different indexes. Then, the change in the level suffered by each stock index is measured and, with these measurements, regression models are formulated allowing us to define the impact of various factors on the structural change of economies [ 24 , 34 , 35 ].…”

Complexity in Economic and Social Systems

“…The cryptocurrency market is also interesting as the possible future fate of money. So their evolution and reacting to external shocks like the COVID-19 pandemic is particularly interesting and instructive [3], especially as it seems that this market gradually reaches maturity [18].…”