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Asymmetry and conduction direction of the interdependent structure between cryptocurrency and US dollar, renminbi, and gold markets

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  • Cao, Guangxi
  • Ling, Meijun

Abstract

The risk conduction mechanism between a cryptocurrency and the US dollar (USD), the renminbi (RMB), and gold markets is helpful for investors' risk management. Based on the non-linearity and asymmetry of the correlation between the fractal market hypothesis and the financial market, this study uses asymmetric multifractal cross-correlation analysis to study the correlation between a cryptocurrency and USD, RMB, and gold markets. First, using the MF-ADCCA method, an obvious asymmetric cross-correlation is found between a cryptocurrency and USD, RMB, and gold markets. USD, RMB, and gold markets are more effective than cryptocurrency markets. In particular, the impact of the RMB market on the cryptocurrency market is the largest among USD, RMB, and gold. When USD and RMB are rising, the risk conduction to cryptocurrencies is more significant. When gold is falling, the risk conduction to cryptocurrencies is more significant. When cryptocurrencies are falling, the risk conduction to USD is more significant. Among cryptocurrencies, Bitcoin, Ethereum, Litecoin, and New Economic Coin have more significant risk conduction to RMB when it falls. Through the DMF-ADCCA method, a two-way asymmetric conduction effect is found between the lagging cryptocurrency and the USD, RMB, and gold markets. Compared with USD and gold, the risk correlation and conduction between RMB and cryptocurrency are the highest. Preventing and controlling the risk impact of cryptocurrency on the RMB and further strengthening the research between cryptocurrency and the RMB are crucial to the internationalization of the RMB and the improvement of international competitiveness.

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  • Cao, Guangxi & Ling, Meijun, 2022. "Asymmetry and conduction direction of the interdependent structure between cryptocurrency and US dollar, renminbi, and gold markets," Chaos, Solitons & Fractals, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:chsofr:v:155:y:2022:i:c:s0960077921010250
    DOI: 10.1016/j.chaos.2021.111671
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    2. Pavel Baboshkin & Alexey Mikhaylov & Zaffar Ahmed Shaikh, 2022. "Sustainable Cryptocurrency Growth Impossible? Impact of Network Power Demand on Bitcoin Price," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 3, pages 116-130, June.
    3. Ghazani, Majid Mirzaee & Khosravi, Reza & Caporin, Massimiliano, 2023. "Analyzing interconnection among selected commodities in the 2008 global financial crisis and the COVID-19 pandemic," Resources Policy, Elsevier, vol. 80(C).

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