Changes to the extreme and erratic behaviour of cryptocurrencies during COVID-19

TL;DR

This study introduces new analytical methods to examine how COVID-19 affected the extreme and erratic behaviors of 51 cryptocurrencies, revealing increased irregularities and identifying specific outliers during the crisis.

Contribution

It develops novel techniques for analyzing extreme and erratic behaviors in cryptocurrency time series and applies them to assess COVID-19's impact on market dynamics.

Findings

Reduction in market self-similarity during COVID-19

Identification of specific cryptocurrencies as outliers and anomalies

Increased irregular behavior in certain cryptocurrencies during the crisis

Abstract

This paper introduces new methods for analysing the extreme and erratic behaviour of time series to evaluate the impact of COVID-19 on cryptocurrency market dynamics. Across 51 cryptocurrencies, we examine extreme behaviour through a study of distribution extremities, and erratic behaviour through structural breaks. First, we analyse the structure of the market as a whole and observe a reduction in self-similarity as a result of COVID-19, particularly with respect to structural breaks in variance. Second, we compare and contrast these two behaviours, and identify individual anomalous cryptocurrencies. Tether (USDT) and TrueUSD (TUSD) are consistent outliers with respect to their returns, while Holo (HOT), NEXO (NEXO), Maker (MKR) and NEM (XEM) are frequently observed as anomalous with respect to both behaviours and time. Even among a market known as consistently volatile, this identifies individual cryptocurrencies that behave most irregularly in their extreme and erratic behaviour and shows these were more affected during the COVID-19 market crisis.