The isotropy of cryptocurrency volatility

Hairudin, Aiman and Mohamad, Azhar (2023) The isotropy of cryptocurrency volatility. International Journal of Finance & Economics. pp. 1-32. ISSN 1076-9307 E-ISSN 1099-1158

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Abstract

We examine the fractal volatility and long-range dependence of Bitcoin, Ether- eum, Tether and USD Coin by employing the continuous wavelet transform, maximal overlap discrete wavelet transform and rescaled range. Our dataset consists of daily prices spanning from January 2017 through to October 2022, encapsulating pre- and post-epidemic eras. Generally, our findings suggest that Tether presents the least overall volatility throughout the time-frequency spec- trum. USD Coin demonstrates ephemeral turbulence, contrary to Tether's maturity in influencing market equilibrium through token issuance and trade responses. In the post-epidemic sample, both stablecoins indicate mean rever- sion, with USD Coin showing marginally better efficiency. Conversely, invest- ment tokens display persistent clusters due to retail traders and long-term fundamental institutions. Although both tokens illustrate multifractal volatil- ity, Ethereum unveils more essence of self-similarity than Bitcoin. Hence, there is no evidence that Ethereum truly duplicates Bitcoin since policy-related events differ between them, as both return series move incongruously. Condi- tional dynamics signify that all cryptocurrencies, except Tether, were affected by the pandemic transition of COVID-19 and subsequent macroeconomic news. The unconditional volatility of stablecoins evinces zero-mean errors, antithetical to investment tokens exhibiting annual cycles. The fractal geome- try suggests that investment tokens simulate one-dimensional lines, whereas stablecoins mimic two-dimensional planes.

Item Type:	Article (Journal)
Uncontrolled Keywords:	bitcoin, cryptocurrency, efficiency, Ethereum, Stablecoin, token, volatility, wavelet
Subjects:	H Social Sciences > HG Finance > HG221 Bitcoin/Cryptocurrency/Block Chain
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User:	Dr Azhar Mohamad
Date Deposited:	16 Jan 2024 11:39
Last Modified:	17 May 2024 15:56
URI:	http://irep.iium.edu.my/id/eprint/109783

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