Driver Or Driven: Assessing the Connectedness Between Bitcoin Futures and Other Major Futures Markets Before, During, and After COVID-19

This paper focuses on capturing actual systemic risk connectedness by exclusively employing bitcoin, precious metals, the US dollar index, and other major futures markets. The dataset spans from 01/01/2018 to 31/12/2024. Diebold and Yilmaz's (2012) approach is employed to analyze the spillover effects of returns and volatility before, during, and after the COVID-19 pandemic. The empirical results generally indicate a rapid increase in connectedness, especially after COVID-19 was declared a global health crisis. The return and volatility systems indicate high connectedness and market integration, implying limited opportunities for diversification across the set of futures markets. The return system findings provide compelling evidence of COVID-19's influence across all variables, particularly on Gold and Silver futures. Bitcoin acted as an effective hedger as it is considered less vulnerable to contributions from all others, yet all variables are substantially influenced. Furthermore, Dollar index, S&P500 ETF, Bitcoin, cryptocurrency policy uncertainty, and cryptocurrency price uncertainty function as the highest contributors to the volatility system. Dynamic analysis provides invaluable insights into how the COVID-19 pandemic impacts connectivity levels, particularly as quarantine measures and vaccine roll-out campaigns bring the pandemic under control. Finally, sub-sample analysis confirms the strong impact of COVID-19 on the futures markets.