Connectedness among major cryptocurrencies in standard times and during the COVID-19 outbreak

The cryptocurrency markets are perceived as being dominated by Bitcoin leading the overall system dynamics. Although the previous empirical evidence points towards strong connections among selected cryptocurrencies or, from the other side, weak dependence between Bitcoin and traditional financial assets, a focused study on the dynamics of return and volatility connectedness among a wider range of cryptocurrencies is lacking, and more so, one directed towards the very first actual critical period of the global economy coinciding with relevant crypto-markets. Using data for the 10 most capitalized cryptocurrencies between 1st October 2017 and 5th January 2021, we examine how cryptocurrencies interact and whether they have a clear leader, with a special focus on differences with respect to investment horizons and how the relationship structure evolves in time. We uncover a structural change in the connectedness evolving in 2020 as the market restructures in reaction to the unprecedented monetary injections as a counter to the COVID-19-induced economic standstill. The structural change is shown not only for crypto-currencies considered separately but also when we jointly examine them with traditional assets.

Automated summary

This study aims to investigate the dynamic connections in the cryptocurrency market and identify the structural changes during a specific period. By analyzing the data of the top 10 cryptocurrencies from October 1, 2017, to January 5, 2021, it is found that the cryptocurrency market experienced a structural change in 2020 due to the impact of the COVID-19 pandemic and monetary interventions. The findings are significant for understanding the operation of the cryptocurrency market during a global economic crisis.