BITCOIN'S LAGGED EFFECT ON ALTCOINS: A SHORT-TERM RESEARCH

Abstract

Purpose- As of October 2021, more than 13,000 cryptocurrencies are traded on 424 exchanges in the crypto money market, which exceeds 2.5 trillion dollars. Cryptocurrency initially emerged as a value exchange tool and to develop projects that make life easier. It is now also used by individuals as a benefit for speculation. Cryptocurrencies are influenced by many economic indicators, as well as interacting with each other. Recently, there is a belief in the crypto money market that Bitcoin is the pioneer of altcoins, supported some literatures. In this study, I investigated how bitcoin, the first and largest of the crypto money market, affects other leading altcoins (alternative cryptocurrencies) (ETH, BNB, ADA, XRP) in the short term as a lag period and interaction direction. Also, I examined the effect of DXY on Bitcoin. Methodology- In February 2018, the cryptocurrency market exceeded $1 trillion. As of October 2021, it was $2.6 trillion. During this time, I calculated the returns on the daily high price data. With the help of VAR models, I researched the impact of short-term lags of BTC on ETH, BNB, ADA, XRP. Also, I've looked at Granger causality relationships. Findings- The daily lagged values of BTC have a positive significant interaction with ETH, ADA and BNB, but there is no such relationship in XRP. I found that DXY's lags have significant positive and negative effects on BTC. In the causality analysis, I saw that BTC has bidirectional Granger causality with DXY and other altcoins except XRP. Conclusion- It is seen that BTC, which dominates 45 percent of the market as of October 2021, is decisive for its movement for many altcoins. The shocks to BTC are then reflected similarly to altcoins. I understood from both the literature and the results that DXY has no reasonable effect on BTC. In future studies, the volatility and return contagion effect of BTC on other altcoins can be examined.

Keywords

• Bitcoin
• altcoin
• vector autoregressive
• DXY
• causality

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