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How Bitcoin market trends affect major cryptocurrencies?

Author

Listed:
  • Bouri, Elie
  • Benbachir, Soufiane
  • Alaoui, Marwane El

Abstract

This study explores the influence of Bitcoin market trends on its cross-correlations with four major cryptocurrencies: Ethereum (ETH), Binance Coin (BNC), Ripple (XRP), and Cardano (ADA) under varying Bitcoin market conditions, using Multifractal Detrended Asymmetric Cross-Correlation Analysis (MF-ADCCA). The preliminary analysis using Q-Cross-correlation statistics confirmed the presence of significant cross-correlations across all pairs. The subsequent application of the Asymmetric DCCA cross-correlation coefficient revealed asymmetric persistent cross-correlations, with notably stronger correlations observed during Bitcoin's upward trends. Using MF-ADCCA, the analysis of generalized Hurst exponents, Rényi exponents, and singularity spectrum functions demonstrated that all cross-correlations exhibit persistent and multifractal behavior, with BTC-ETH showing the highest degree of multifractality. Additionally, the examination of uptrend and downtrend fluctuation functions in the monofractal case revealed clear asymmetry across all cross-correlations. By analyzing the excess difference between uptrend and downtrend generalized Hurst exponents, the results indicated that the cross-correlations Bitcoin-Ethereum and Bitcoin-Ripple displayed stronger persistence during Bitcoin's bullish trend, up certain orders, after which, the pattern reversed in bearish conditions. In contrast, Bitcoin-Binance Coin exhibited stronger persistence during Bitcoin's bearish trend across all the fluctuation orders. On the other hand, Bitcoin-Cardano exhibits stronger persistence during the bullish trend, up a certain fluctuation order, after which the cross-correlation became symmetric. In terms of practical implications, this study provides insights into market efficiency and offers valuable guidance for investors. It helps optimize portfolio diversification, enhance risk management, and implement effective trading and hedging strategies.

Suggested Citation

  • Bouri, Elie & Benbachir, Soufiane & Alaoui, Marwane El, 2025. "How Bitcoin market trends affect major cryptocurrencies?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 668(C).
    • Handle: RePEc:eee:phsmap:v:668:y:2025:i:c:s0378437125002390
    DOI: 10.1016/j.physa.2025.130587
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    More about this item

    Keywords

    Bitcoin; Cryptocurrencies; MF-DCCA; Cross-correlation statistics test; Asymmetric DCCA Cross-Correlation Coefficient; JEL; G10; G11; G14; C58; C63; D53;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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