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Roles of stable versus nonstable cryptocurrencies in Bitcoin market dynamics

Author

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  • BRIK, Hatem
  • El OUAKDI, Jihene
  • FTITI, Zied

Abstract

This work assesses the roles of nonstable and stable cryptocurrencies in the dynamics of the Bitcoin market. Formally, we aim to study the return and volatility transmissions between Bitcoin and stablecoins in comparison with Bitcoin/nonstable cryptocurrency pairs. Accordingly, we deduce the optimal portfolio weights based on the hedging strategy. Our results explain which cryptocurrency plays the role of safe haven or hedge and whether the relationship can be described more by the contagion effect versus interdependence based on fundamentals. We observed bidirectional return transmissions between Bitcoin and both nonstable as well as stable cryptocurrencies. The volatility transmission is bidirectional for Bitcoin/Ethereum and Bitcoin/Bitcoin Cash over the short and long terms and unidirectional for Bitcoin/Tether and Bitcoin/TrueUSD over the short term. There are no long-term bidirectional volatility transmissions except for Bitcoin/TrueUSD. The optimal portfolio weights of stable (nonstable) cryptocurrencies are found to be lower (higher) than that of Bitcoin.

Suggested Citation

  • BRIK, Hatem & El OUAKDI, Jihene & FTITI, Zied, 2022. "Roles of stable versus nonstable cryptocurrencies in Bitcoin market dynamics," Research in International Business and Finance, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:riibaf:v:62:y:2022:i:c:s0275531922001088
    DOI: 10.1016/j.ribaf.2022.101720
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    Cited by:

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    2. Díaz, Antonio & Esparcia, Carlos & Huélamo, Diego, 2023. "Stablecoins as a tool to mitigate the downside risk of cryptocurrency portfolios," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Hedging; Safe haven; Contagion; Return and volatility transmissions; Spillover;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F3 - International Economics - - International Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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