Cryptocurrencies have quickly become a focal point of investor attention in recent months. Their future remains unpredictable as their markets can be affected by news stories, popularity surveys and court rulings (XRP specifically).
Prior research has analyzed the relationships between cryptocurrency markets and indices of fear, uncertainty and volatility found in traditional financial markets. This paper expands upon this body of work by exploring quantile connectedness, risk diffusion and contagion within cryptocurrency markets.
Bitcoin
Cryptocurrencies are digital forms of currency that operate independent from central banks and governments, with their value determined by supply and demand on online exchanges; other factors, including market sentiment, news stories and regulatory changes can have an effect.
Cryptocurrencies as speculative assets have the potential to exasperate flight-to-quality and flight-to-safety events in financial markets, which could threaten financial stability (Gubareva et al. 2022). Scholars and practitioners alike have taken note of this risk over time.
Gurdgiev and O’Loughlin explore the relationship between cryptocurrency trading and various proxy measures of fear, uncertainty and investor sentiment. They find that cryptocurrency exhibits positive mean returns with negative skewness while volatility indices show an opposite pattern; moreover, their correlation increases during bubble-like regimes than during normal times.
Ripple
Ripple is one of the most innovative crypto innovations, as it seeks to revolutionize cross-border payments. Due to its low prices compared to other top assets, it makes Ripple an attractive option for both beginner and mid-level investors, though short and long-term price predictions of this cryptocurrency remain difficult.
Ripple’s XRP token is used by financial institutions to facilitate international money transfers. Due to its speed and reliability, major banks like Santander have adopted it. This has spurred increased interest in Ripple, and new highs could be reached by 2025 depending on Ripple winning its suit against the US Securities and Exchange Commission (SEC) if successful – otherwise losses in court could send its price plummeting even further.
ETH
Ethereum (ETH) is one of the leading cryptocurrencies and it is projected to continue rising in value through 2023. The forecast takes into account numerous factors, including regulatory initiatives, technological advancements and market demands.
ETH prices are expected to increase as more people become acquainted with decentralized finance and non-fungible tokens (NFTs). Ethereum technology offers numerous uses, from peer-to-peer financial transactions to smart contracts which support DeFi and NFTs.
Note that ETH prices can fluctuate wildly; therefore, conducting your own research prior to investing can be invaluable. You could use fundamental analysis – an analytical technique which measures cryptocurrency intrinsic values using various qualitative factors – as a way of making more informed decisions.
LTC
Litecoin, often referred to as “the silver to Bitcoin’s gold,” is an immensely popular cryptocurrency with low transaction costs that is widely utilized by major businesses such as Google.
Even with its relatively modest market size, Litecoin has seen dramatic price fluctuation, which may continue to occur for some time to come. Still, it remains an attractive investment option.
We conducted an in-depth analysis of the interdependence between main cryptocurrencies and volatility indices by employing an innovative data set containing real-time returns of these coins. Our findings reveal that equity, crude oil and gold volatility indices display more systemic connectedness than cryptocurrencies; however, BTC, ETH, LTC and XRP were all net pairwise transmitters of shocks across all volatility indices during all market conditions, which illustrates their leadership roles in risk transmission processes.
DSH
While Bitcoin (BTC) may garner most of the headlines when it comes to crypto assets, other lesser-known cryptocurrencies are giving Bitcoin some serious competition. Ethereum and Ripple’s XRP have doubled and quintupled their values since last month respectively.
Rising popularity of smaller coins has been fuelled by wider acceptance in the market. Japan, renowned for being welcoming of innovative technologies, recently recognized Bitcoin.
However, this rally has also resulted in some overvaluations within the cryptocurrency market. According to Kaiko’s research team, BTC and ETH are overvalued by more than 10%, while XRP and LTC also appear overpriced.
