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Tracing Contagion between Bitcoin and Traditional Markets

Author

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  • Grigorios Rapos

    (Department of Economics, University of Macedonia)

  • Stylianos Fountas

    (Department of Economics, University of Macedonia)

Abstract

This study investigates the presence of contagion between Bitcoin and four traditional assets (stocks, bonds, gold, and the U.S. dollar exchange rate) over the period 2015-2024. By implementing a framework that combines the DCC-GARCH specification and a time-varying causal inference methodology, we investigate periods of financial contagion. Overall, our findings support that Bitcoin remains weakly connected to the global financial markets. Our main results are as follows: First, among all assets, Bitcoin significantly Granger causes only the U.S. dollar exchange rate during the post-2021 sample period. Second, Bitcoin is Granger caused by the stock market and the US dollar exchange rate. Third, there is evidence for rare contagion episodes running from Bitcoin to the U.S. dollar exchange rate, while there is no evidence of contagion from Bitcoin to all other assets (stocks, bonds, and gold). Fourth, sporadic contagion also applies from the stock market to Bitcoin, mostly in May 2022. Our evidence implies that Bitcoin may be used as a useful portfolio diversification instrument.

Suggested Citation

  • Grigorios Rapos & Stylianos Fountas, 2025. "Tracing Contagion between Bitcoin and Traditional Markets," Discussion Paper Series 2025_02, Department of Economics, University of Macedonia, revised Feb 2025.
    • Handle: RePEc:mcd:mcddps:2025_02
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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