One size does not fit all: external driver of the cryptocurrency world
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 19 June 2020
Issue publication date: 19 September 2020
Abstract
Purpose
Considering the different motivation for the creation of each of these cryptocurrencies, the purpose of this paper is to examine whether there is a dominant external factor in the cryptocurrency world. Using a novel two-step time and frequency independent methodology, the authors examine a large scope of cryptocurrencies and external factors within the same period, and analytical framework.
Design/methodology/approach
The examined cryptocurrencies are Bitcoin, Ethereum, Ripple, Litecoin, Monero and Dash. In total, 18 external factors from 5 factor families are selected based on the mining motivation of these cryptocurrencies. The study first examines discrete wavelet transform-based (WTB) correlations, reduce the dimension and focuson relevant pairs. Selected pairs are further examined by wavelet coherence to capture the intermittent nature of the relationships allowing the most needed “Flexibility of frequency and time domains”.
Findings
Each coin appears to operate as a unique character with the exception of Bitcoin and Litecoin. There is no prominent external driver. The cryptocurrency market is not a clear substitute for a specific factor or market. Two-step WTB filtered wavelet coherence analysis help us to analyze a large number of factor without the loss of focus. The co-movements within the cryptocurrencies spillover from Ethereum to altcoins and later to Bitcoin.
Originality/value
The study presents one of the first examples of two-step WTB filtered wavelet coherence analysis. The methodology suggests an approach for simultaneous examination of large number of variables. The scope of the study provides a rather holistic view of the co-movements of external factors and major cryptocurrencies.
Keywords
Citation
Erzurumlu, Y.O., Oygur, T. and Kirik, A. (2020), "One size does not fit all: external driver of the cryptocurrency world", Studies in Economics and Finance, Vol. 37 No. 3, pp. 545-560. https://doi.org/10.1108/SEF-01-2020-0018
Publisher
:Emerald Publishing Limited
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