Are the Crypto Markets Shock Resilient to COVID-19? A Comparative Investigation of Trading Prices and Volumes

Year 2024, , 148 - 171, 14.01.2025

Asad Ul Islam Khan , William Bwando

https://doi.org/10.33818/ier.1477175

Abstract

The emergence of crypto currency as an alternative source of currency has been dubbed as one of the greatest phenomenon of the 21st century. Over the years, crypto currencies have grossly interrupted the traditional financial system and they continue to act as a catalyst for its revolution. However, cryptocurrencies have not been free from misery and controversies. The aim of this study is to explore and investigate empirically the impact of Covid-19 pandemic on price and volume dynamics in crypto markets. The study makes use of two data samples, but these samples are analyzed separately and independently. The first sample consists of Top Five Cryptocurrencies in terms of market capitalization (Bitcoin, Ethereum, XRP, Binance coin and Litecoin) as at 7 November 2020. The second one is made up of the Bottom Five Cryptocurrencies among the top 40 cryptocurrencies (FTX Token, Huobi Token, Filecoin, Dash and Decreed) as at 7 November 2020 again. The data among the Top Five Cryptocurrencies ranges from 2014 to 2021 and the data among the Bottom Five Cryptocurrencies ranges from 2018 to 2021.. The empirical results reveal that all crypto-currencies are integrated at order 1 i.e. I (1). The empirical analysis confirms presence of strong evidence for intra-and-inter long run relationship between price and volume dynamics within the crypto market irrespective of whether it is pre-pandemic or pandemic period. More so, there is convincing evidence from the results that much of the variance among the prices and volumes of the top five cryptocurrencies is attributed to the Bitcoin price-volume dynamics. This implies that it is critical for crypto market traders, investors and portfolio managers, before making any investment decision must consider the dynamics of price and trading volumes of BITCOIN as they hugely impact the prices and volumes of other altcoins.

Keywords

cryptocurrencies, cointergration, VECM, Covid-19, resillience

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