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Do Cryptocurrencies Increase the Systemic Risk of the Global Financial Market?

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  • Shiyun Li
  • Yiping Huang

Abstract

The advance of cryptocurrencies has sparked wide concern over their interplay with the existing global financial market. This paper analyzes the risk spillover relation between cryptocurrencies and major financial assets, and unravels how cryptocurrencies could influence global financial systemic risk. We find that cryptocurrencies function as a separate risk source from traditional assets. Major legislative, financial and technological events in the cryptocurrency market may affect risk spillover dynamics. Although the overall penetration of cryptocurrencies is not yet deep, introducing cryptocurrency can significantly increase the systemic risk to traditional markets during low risk level episodes.

Suggested Citation

  • Shiyun Li & Yiping Huang, 2020. "Do Cryptocurrencies Increase the Systemic Risk of the Global Financial Market?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 28(1), pages 122-143, January.
    • Handle: RePEc:bla:chinae:v:28:y:2020:i:1:p:122-143
    DOI: 10.1111/cwe.12314
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    Cited by:

    1. Sifat, Imtiaz, 2021. "On cryptocurrencies as an independent asset class: Long-horizon and COVID-19 pandemic era decoupling from global sentiments," Finance Research Letters, Elsevier, vol. 43(C).
    2. Lianying Yao & Xiaoli Yang, 2022. "Can digital finance boost SME innovation by easing financing constraints?: Evidence from Chinese GEM-listed companies," PLOS ONE, Public Library of Science, vol. 17(3), pages 1-20, March.
    3. Zhang, Shuai & Hou, Xinyu & Ba, Shusong, 2021. "What determines interest rates for bitcoin lending?," Research in International Business and Finance, Elsevier, vol. 58(C).
    4. Giacomo di Tollo & Joseph Andria & Gianni Filograsso, 2023. "The Predictive Power of Social Media Sentiment: Evidence from Cryptocurrencies and Stock Markets Using NLP and Stochastic ANNs," Mathematics, MDPI, vol. 11(16), pages 1-18, August.
    5. Zhao, Jun & Dong, Kangyin & Dong, Xiucheng & Shahbaz, Muhammad & Kyriakou, Ioannis, 2022. "Is green growth affected by financial risks? New global evidence from asymmetric and heterogeneous analysis," Energy Economics, Elsevier, vol. 113(C).
    6. Zhang, Yue-Jun & Bouri, Elie & Gupta, Rangan & Ma, Shu-Jiao, 2021. "Risk spillover between Bitcoin and conventional financial markets: An expectile-based approach," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    7. Jiang, Wen & Xu, Qiuhua & Zhang, Ruige, 2022. "Tail-event driven network of cryptocurrencies and conventional assets," Finance Research Letters, Elsevier, vol. 46(PB).
    8. Samuel Enajero, 2021. "Cryptocurrency, Money Demand and the Mundell-Fleming Model of International Capital Mobility," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 49(1), pages 57-69, March.
    9. Chioma Nwosu Peace & Bosha Ernest Oryiman & Abubakar Ibrahim Sani, 2023. "Digital Currency and Financial Markets in Nigeria: Impact and Policy Implications," Financial Economics Letters, Anser Press, vol. 2(3), pages 22-36, December.
    10. Fang, Sheng & Cao, Guangxi & Egan, Paul, 2023. "Forecasting and backtesting systemic risk in the cryptocurrency market," Finance Research Letters, Elsevier, vol. 54(C).

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