COVID-19 and cryptocurrency market: Evidence from quantile connectedness

ABSTRACT

This study quantifies the spillover effects among seven cryptocurrencies to explore the spillover characteristics of seven cryptocurrencies, namely, Bitcoin, Ethereum, Ripple, Litecoin, Monero, Stellar, and NEM. The connectedness networks of returns are based on standard VAR and quantile VAR spillovers. In addition, the framework focuses on intact, pre-, and post-COVID-19 crisis sub-sample periods. Our results highlight that Bitcoin, Litecoin, and Ripple are the dominant transmitters to return spillover. The strongest interconnection is found for Bitcoin/Litecoin and Ripple/Sellar pair. Interestingly, Ethereum is the unvarying recipient in the system and is influenced by most of the cryptocurrencies. Further, NEM exhibits no connection with any of the cryptocurrency in the network acting as a potential diversifier. The quantile spillovers suggest increased intensity of connectedness at right and left tails. The sub-sample analysis confirms the low network integration across the cryptocurrencies during pre-COVID period. Finally, the post-COVID period indicates tangled clusters across the cryptocurrencies. The analysis provides contrasting results as obtained in the pre-analysis phase. Implications for investors and policymakers are highlighted in the study.

KEYWORDS:

• COVID-19
• cryptocurrency market
• extreme return spillovers
• quantile connectedness

Acknowledgments

Muhammad Abubakr Naeem gratefully acknowledges the support of Science Foundation Ireland under grant number 16/SPP/3347

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ See Rehman and Kang (2020).

² CoinMarketCap. Available online: https://coinmarketcap.com (accessed on 20 August 2020).

³ The size of the node shows the magnitude of contribution of each variable to system connectedness, while the colour indicates the origin of connectedness. The red colour implies contribution from the variable under consideration to the other variables of the system and the yellow colour means contribution from the other variables to the variable under analysis. The colour and shape of the arrows refer to the strength of connectedness. The red colour and full line arrows represent strong spillovers while green and blue colour arrows show medium and weak return spillovers, respectively.

⁴ Cryptocurrency Worth $530 Million Missing From Japanese Exchange, The Wall Street Journal.

⁵ (Koutmos 2018).

⁶ (Koutmos 2018; Kumar and Anandarao 2019).

⁷ They estimations are available upon request to the corresponding author.

Additional information

Funding

Muhammad Abubakr Naeem gratefully acknowledges the support of Science Foundation Ireland under grant number 16/SPP/3347.