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Did cryptomarket chaos unleash Silvergate's bankruptcy? investigating the high-frequency volatility and connectedness behind the collapse

Author

Listed:
  • Esparcia, Carlos
  • Escribano, Ana
  • Jareño, Francisco

Abstract

We examine intraday volatility connectedness of the Silvergate’s equity, a major crypto bank, and eight of the main existing cryptocurrencies using data surrounding the collapse of the bank, from 10:00 UTC + 1 on January 3 to 13:00 UTC + 1 on March 13, 2023. To that purpose, we first estimate intraday hourly volatility time series by applying a mcGARCH model which are then used to provide network connectedness measures via a TVP-VAR model. Thus, our findings revolve around five key ideas. (1) This study suggests that cryptomarket usual uncertainty contributes to Silvergate's collapse, (2) rather than the other way around. (3) The study also highlights the complex interconnectedness of cryptocurrencies during market stress and (4) the linkages between leading cryptocurrencies that contributed to the Silvergate crash. (5) Finally, conventional and green cryptocurrencies are shown to provide the highest net impact on overall volatility connectedness.

Suggested Citation

  • Esparcia, Carlos & Escribano, Ana & Jareño, Francisco, 2023. "Did cryptomarket chaos unleash Silvergate's bankruptcy? investigating the high-frequency volatility and connectedness behind the collapse," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:intfin:v:89:y:2023:i:c:s1042443123001191
    DOI: 10.1016/j.intfin.2023.101851
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    Keywords

    Silvergate; Intraday volatility; High frequency connectedness; mcGARCH; TVP-VAR;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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