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Exploring Resilience in the Cryptocurrency Market: Risk Transmission and Network Robustness

Author

Listed:
  • Yin, Wei

    (School of Economics and Management, Southeast University, Nanjing, China)

  • Wu, Fan

    (School of Economics and Management, Southeast University, Nanjing, China)

  • Zhou, Peng

    (Cardiff Business School, Cardiff University, Cardiff, UK)

  • Kirkulak-Uludag, Berna

    (Faculty of Business, Dokuz Eylul University, Ä°zmir, Turkiye)

Abstract

The cryptocurrency market is characterized by rapid risk transmission, strong interconnectedness, and substantial downside risk, driven by technical similarities among major cryptocurrencies and herd behavior of investors. To analyze these dynamics, we construct a directed, weighted cryptocurrency risk spillover network consisting of 20 leading cryptocurrencies, using the DCC-GARCH-Copula-ΔCoVaR model. The market is segmented into six groups based on the interdependence of market values. The study evaluates the resilience of the network under a range of scenarios, including both random failures and intentional attacks, and validates the findings through a real-world case study of the 2022 Luna collapse. The results show that the overall resilience of the cryptocurrency risk network has improved as the market matures. Leading cryptocurrencies act as net risk receivers, enhancing the network's robustness. In contrast, active cryptocurrencies can accelerate the contagion of risks across the market. These findings suggest that effective risk management in the cryptocurrency market requires not only the stabilization of major cryptocurrencies but also the ongoing monitoring of smaller, high-activity cryptocurrencies.

Suggested Citation

  • Yin, Wei & Wu, Fan & Zhou, Peng & Kirkulak-Uludag, Berna, 2025. "Exploring Resilience in the Cryptocurrency Market: Risk Transmission and Network Robustness," Cardiff Economics Working Papers E2025/18, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2025/18
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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