CRYPTO CURRENCY APPLICATIONS IN FINANCIAL MARKETS: FACTORS AFFECTING CRYPTO CURRENCY PRICES

Abstract

Purpose- As the cryptocurrency market is beginning to attract investors, a new portfolio of cryptocurrencies has been published in the literature on macro-economic factors affecting these currencies. This research also aimed to identify the interaction between gold, brent oil, Bitcoin, Ethereum and Ripple. Methodology- The database includes the Daily prices of Bitcoin, Ethereum, Ripple, gold and brent oil prices between the period of 03.04.2018-31.12.2020 which consist of 500 daily data. Natural logaritm for each indicator is used. First, the stationarity of the series were analyzed with ADF (Augmented Dickey Fuller) unit root test. Lag lengths are determined. Interactions between the series were analyzed by the Johansen Cointegration test, Granger Causality test, Impulse- Response Function and Variance Decomposition method. Findings- The series are found out to be stationary at first difference. According to the cointegration test result, cointegration could not be found between our data. According to Granger causality analysis, only one-way relationship was found from bitcoin to gold. Impulse response graphs indicate that all variables respond in a reducing way to reducing shocks occurred in each indicator. Shocks have lost their effect on average in 2 days. Conclusion- The results indicate that the effect of gold and brent oil prices on bitcoin, ethereum, ripple daily prices do not have a strong effect. The results may be beneficial for investors to consider diversification for the portfolios.

Keywords

• Crytocurrency
• Johansen Co-integration Test
• Granger Casuality Test
• Impulse- Response Function and Variance Decomposition

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