A Dynamic Spillover Effect Investigation on Cryptocurrency Market Before and After Pandemic

TL;DR

This study investigates how the COVID-19 pandemic intensified risk spillovers among cryptocurrencies, revealing increased propagation effects and the influence of epidemic indicators on market dynamics.

Contribution

It introduces an asymmetric breakpoint approach to analyze risk relationships and explores the dynamic evolution of cryptocurrency risk associations before and after the pandemic.

Findings

Risk propagation among cryptocurrencies intensified during the pandemic.

Confirmed cases increased risk spillover effects among cryptocurrencies.

Risk resonance between crude oil and cryptocurrencies amplified pandemic impact.

Abstract

This paper distinguishes between risk resonance and risk diversification relationships in the cryptocurrency market based on the newly developed asymmetric breakpoint approach, and analyzes the risk propagation mechanism among cryptocurrencies under extreme events. In addition, through the lens of node association and network structure, this paper explores the dynamic evolutionary relationship of cryptocurrency risk association before and after the epidemic. In addition, the driving mechanism of the cryptocurrency risk movement is analyzed in a depth with the epidemic indicators. The findings show that the effect of propagation of risk among cryptocurrencies becomes more significant under the influence of the new crown outbreak. At the same time, the increase in the number of confirmed cases exacerbated the risk spillover effect among cryptocurrencies, while the risk resonance effect that exists between the crude oil market and the cryptocurrency market amplified the extent of the outbreak's impact on cryptocurrencies. However, other financial markets are relatively independent of the cryptocurrency market. This study proposes a strategy to deal with the spread of cryptocurrency risks from the perspective of a public health crisis, providing a useful reference basis for improving the regulatory mechanism of cryptocurrencies.