IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1806.08386.html
   My bibliography  Save this paper

Critical slowing down associated with critical transition and risk of collapse in cryptocurrency

Author

Listed:
  • Chengyi Tu
  • Paolo DOdorico
  • Samir Suweis

Abstract

Cryptocurrencies are increasingly popular digital assets/cashes programmed to work as a medium of exchange that are "secure" by design (e.g., through block-chains and cryptography). The year 2017 saw the rise and fall of the cryptocurrency market, followed by high volatility in the price of each cryptocurrency. In this work, we study critical transitions in cryptocurrency residuals through the phenomenon of critical slowing down. We find that, regardless of the specific cryptocurrency or rolling window size, the autocorrelation always fluctuates around a high value and the standard deviation increases monotonically. In particular, we have detected two sudden jumps in the standard deviation, in the second quarter of 2017 and at the beginning of 2018, suggesting early warning signals of two majors price collapse that have happened in those periods. Our findings represent a first step towards a better diagnostic of the risk of critical transition in the price and/or volume of cryptocurrencies.

Suggested Citation

  • Chengyi Tu & Paolo DOdorico & Samir Suweis, 2018. "Critical slowing down associated with critical transition and risk of collapse in cryptocurrency," Papers 1806.08386, arXiv.org.
  • Handle: RePEc:arx:papers:1806.08386
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1806.08386
    File Function: Latest version
    Download Restriction: no

    References listed on IDEAS

    as
    1. James Tan & Siew Cheong, 2014. "Critical slowing down associated with regime shifts in the US housing market," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 87(2), pages 1-10, February.
    2. Hayette Gatfaoui & Isabelle Nagot & Philippe De Peretti, 2016. "Are Critical Slowing Down Indicators Useful to Detect Financial Crises?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01505202, HAL.
    3. Michel Rauchs & Garrick Hileman, 2017. "Global Cryptocurrency Benchmarking Study," Cambridge Centre for Alternative Finance Reports, Cambridge Centre for Alternative Finance, Cambridge Judge Business School, University of Cambridge, number 201704-gcbs.
    4. Neil Gandal & Hanna Halaburda, 2014. "Competition in the Cryptocurrency Market," Working Papers 14-17, NET Institute.
    5. Marco Alberto Javarone & Craig Steven Wright, 2018. "From Bitcoin to Bitcoin Cash: a network analysis," Papers 1804.02350, arXiv.org, revised Jul 2018.
    6. Hayette Gatfaoui & Isabelle Nagot & Philippe De Peretti, 2016. "Are critical slowing down indicators useful to detect financial crises?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01339815, HAL.
    7. Alexandre Bovet & Carlo Campajola & Jorge F. Lazo & Francesco Mottes & Iacopo Pozzana & Valerio Restocchi & Pietro Saggese & Nicol'o Vallarano & Tiziano Squartini & Claudio J. Tessone, 2018. "Network-based indicators of Bitcoin bubbles," Papers 1805.04460, arXiv.org.
    8. repec:hal:journl:halshs-01339815 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1806.08386. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators). General contact details of provider: http://arxiv.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.