Interlinkages between cryptocurrency classes and the hydrogen economy: New diversification insights from a partial correlation-based connectedness approach

The growing links of digital assets and sustainable investments have raised questions about whether risks can move between cryptocurrency markets and the young financial market connected to the hydrogen industry. These links are still not well documented. This study provides new evidence on the links between four cryptocurrency classes (conventional, green, DeFi tokens, and NFTs) and the hydrogen economy (HEI) across different market regimes. Using an innovative partial correlation-based connectedness approach, we capture contemporaneous spillovers and detect immediate shifts in dependencies, particularly during extreme market conditions. Results indicate that the average dependence between cryptocurrencies and HEI is generally low to moderate, intensifying during periods of stress. ETH emerges as the main transmitter of shocks in most regimes, while HEI consistently acts as a net receiver. Portfolio analysis combines a multivariate framework (using the inverse FROM connectedness portfolio and a naïve risk parity benchmark) with a bivariate analysis based on optimal weights, hedge ratios, and hedging effectiveness. Both approaches show that HEI provides diversification benefits but limited hedging capacity against cryptocurrency volatility, while stablecoins (USDT and USDC) offer little or no improvement and can increase portfolio risk during stress. For policymakers, the growing interconnectedness between cryptocurrency markets and the nascent green financial sector (especially in extreme conditions) presents both opportunities and systemic risks. Targeted regulatory frameworks could help channel crypto-market liquidity toward financing sustainable energy transitions while mitigating systemic risk through transparency and coordinated oversight. The findings underscore the need for active portfolio monitoring in cryptocurrency-green asset combinations.