Ethereum synchronicity, upside volatility and Bitcoin crash risk

The fundamental value of Bitcoin is difficult to evaluate because there is no underlying company or cashflow. Extant literature documented various macro-economic factors and technical factors to price Bitcoin. However, for a highly speculative instrument, investors' behavior plays an important role in asset pricing. This paper incorporates Bitcoin Ethereum synchronicity conditional on upside volatility of Bitcoin as a proxy for the fear of high Bitcoin prices. Empirical results reveal that when upside volatility is high, Ethereum synchronicity exerts a significant positive influence on Bitcoin crash risk.

Automated summary

The evaluation of Bitcoin's fundamental value is challenging due to the absence of an underlying company or cashflow. This paper highlights the importance of investors' behavior in asset pricing, particularly for a speculative instrument like Bitcoin. The study reveals that high upside volatility of Bitcoin, as indicated by Ethereum synchronicity, significantly increases Bitcoin crash risk.