Virtual Relationships: Short- and Long-run Evidence from BitCoin and Altcoin Markets

TL;DR

This paper investigates the short- and long-term interdependencies between Bitcoin and altcoin markets using time-series analysis, revealing stronger short-term links and the influence of macro-financial factors in the long run.

Contribution

It provides empirical evidence on the interdependence and differing dynamics between Bitcoin and altcoin prices over time, using comprehensive daily data analysis.

Findings

Bitcoin and altcoin markets are interdependent.

Short-term relationships are stronger than long-term.

Macro-financial indicators influence long-term altcoin prices.

Abstract

This study empirically examines interdependencies between BitCoin and altcoin markets in the short- and long-run. We apply time-series analytical mechanisms to daily data of 17 virtual currencies (BitCoin + 16 alternative virtual currencies) and two Altcoin price indices for the period 2013-2016. Our empirical findings confirm that indeed BitCoin and Altcoin markets are interdependent. The BitCoin-Altcoin price relationship is significantly stronger in the short-run than in the long-run. We cannot fully confirm the hypothesis that the BitCoin price relationship is stronger with those Altcoins that are more similar in their price formation mechanism to BitCoin. In the long-run, macro-financial indicators determine the altcoin price formation to a greater degree than BitCoin does. The virtual currency supply is exogenous and therefore plays only a limited role in the price formation.