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Modelling the dynamics of cryptocurrency prices for risk hedging: The case of Bitcoin, Ethereum, and Litecoin

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  • Chekwube V. Madichie
  • Franklin N. Ngwu
  • Eze A. Eze
  • Olisaemeka D. Maduka

Abstract

Cryptocurrencies have, over the years, gained an unprecedented prominence in financial discourse, with the market fielding over 5,300 digital currencies and reaching over $2 trillion in market capitalisation in 2022. The surge in market values of digital currencies and their popularity in the world of e-commerce have remained unabated and equally received special attention from researchers focusing on identifying the underlying factors that drive changes in their market values. Thus, this study models the dynamics of the prices of cryptocurrencies alongside their interconnectedness, focusing on Bitcoin, Ethereum, and Litecoin along the time and frequency dimensions of monthly data from 1 March 2016 to 05/31/2022. Based on the ARDL model, results show that the volume of transactions of Bitcoin, Ethereum, and Litecoin, oil prices, and gold prices exert a more significant positive influence on their prices in the longrun than in the shortrun. However, the publicity of the selected cryptocurrencies (google search rates) does not significantly influence their prices. Interestingly, results from the Wavelet Granger causality tests show no causality between the raw series of Bitcoin, Ethereum, and Litecoin prices. However, a bi-directional causality exists between Bitcoin and Ethereum prices during the longrun in their low frequencies, a unidirectional causality running from Bitcoin to Litecoin prices during the longrun in their low frequencies, and a unidirectional causality running from Litecoin to Ethereum prices during the shortrun, medium run and longrun in their high, medium, and low frequencies. These findings have profound implications for the global financial market and investor decisions.

Suggested Citation

  • Chekwube V. Madichie & Franklin N. Ngwu & Eze A. Eze & Olisaemeka D. Maduka, 2023. "Modelling the dynamics of cryptocurrency prices for risk hedging: The case of Bitcoin, Ethereum, and Litecoin," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(1), pages 2196852-219, December.
    • Handle: RePEc:taf:oaefxx:v:11:y:2023:i:1:p:2196852
    DOI: 10.1080/23322039.2023.2196852
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    Cited by:

    1. Parthajit Kayal & Sumanjay Dutta, 2024. "Regime switching and causal network analysis of cryptocurrency volatility: evidence from pre-COVID and post-COVID analysis," Digital Finance, Springer, vol. 6(2), pages 319-340, June.

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