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


  • Chengyi Tu
  • Paolo DOdorico
  • Samir Suweis


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.

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

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    References listed on IDEAS

    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,, 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,
    8. repec:hal:journl:halshs-01339815 is not listed on IDEAS
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