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Volatility Links: Crypto and Traditional Markets

USAMonday, January 6, 2025

Ever wondered how cryptocurrencies like Bitcoin and Ethereum relate to gold, oil, and stock prices? This study examined five major cryptocurrencies and their connection to these traditional markets. A special method called 'cross-quantilogram' and 'quantile connectedness' was used to see how these markets interact. What did they find? Well, it turns out that the relationship between cryptocurrencies and traditional market volatility varies a lot, especially in extreme conditions. Normally, the linkage is moderate, but it changes under tough market conditions like bearish or bullish trends. Another interesting point? Cryptocurrencies tend to lead the volatility in these markets. This has big implications for financial stability and investing. It suggests that cryptocurrencies might not be the best hedge against extreme market swings, but they could still offer some protection under normal conditions.

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