Volatility Spillovers Among the Cryptocurrency Time Series
One of the key drivers of cryptocurrency volatility is the lack of a stable underlying value. Unlike traditional currencies, cryptocurrencies are not backed by a central authority or any physical commodity. This lack of stability has led to frequent and sharp price swings in the cryptocurrency markets.
Furthermore, the cryptocurrency market is highly interconnected and interdependent, with prices and trading volumes of one cryptocurrency affecting the prices and trading volumes of others. This interdependence can lead to spillovers in volatility from one cryptocurrency to another. For example, a significant price drop in one major cryptocurrency like Bitcoin can lead to a decline in other cryptocurrencies, as investors and traders move their funds from one cryptocurrency to another in search of a safer haven.
The spillovers in cryptocurrency volatility can also have significant effects on the financial stability of the cryptocurrency market. High levels of volatility can lead to increased market instability and raise the risk of panic selling, which can further amplify the volatility.
In conclusion, the volatility spillovers among the cryptocurrency time series highlight the need for careful consideration and regulation of the cryptocurrency market. It is important to understand the underlying drivers of volatility and take steps to address the sources of instability in the cryptocurrency market. The regulators and stakeholders in the cryptocurrency market should work together to promote stability and minimize the risk of volatility spillovers that can harm the market and its participants.
10-02-2023