When bitcoin lost its position: Cryptocurrency uncertainty and the dynamic spillover among cryptocurrencies before and during the COVID-19 pandemic

Mohammad Al-Shboul; Ata Assaf; Khaled Mokni

doi:10.1016/j.irfa.2022.102309

When bitcoin lost its position: Cryptocurrency uncertainty and the dynamic spillover among cryptocurrencies before and during the COVID-19 pandemic

Int Rev Financ Anal. 2022 Oct:83:102309. doi: 10.1016/j.irfa.2022.102309. Epub 2022 Jul 16.

Authors

Mohammad Al-Shboul¹, Ata Assaf^{2

3}, Khaled Mokni^{4

5}

Affiliations

¹ Department of Finance and Economics, School of Business Administration, University of Sharjah, United Arab Emirates.
² Faculty of Business and Management, University of Balamand, P.O.Box: 100, Tripoli, Lebanon.
³ Cyprus International Institute of Management (CIIM), P. O. Box 20378, 2151 Nicosia, Cyprus.
⁴ College of Business Administration, Northern Border University, Arar 91431, Saudi Arabia.
⁵ Institut Supérieur de Gestion de Gabès, Gabès Université, Gabès 6002, Tunisia.

Abstract

This paper examines the dynamic spillovers among the major cryptocurrencies under different market conditions and accounts for the ongoing COVID-19 health crisis. We also investigate whether cryptocurrency policy (CCPO) uncertainty and cryptocurrency price (CCPR) uncertainty affect the dynamic connectedness. We adopt the Quantile-VAR approach to capture the left and right tails of the distributions corresponding to return spillovers under different market conditions. Generally, cryptocurrencies show heterogeneous responses to the occurrence of the COVID-19 pandemic. We find that the total spillover index (TCI) varies across quantiles and rises widely during extreme market conditions, with a noticeable impact of the COVID-19 pandemic. Bitcoin lost its position as a dominant "hedger" during the health crisis, while Litecoin became the most dominant "hedger" and/or "safe-haven" asset before and during the pandemic period. Moreover, our analysis shows a significant impact of market uncertainties on total and net connectedness among the five cryptocurrencies. We argue that the COVID-19 pandemic crisis plays a vital role on the relationship between CCPO as well as CCPR and the dynamic connectedness across all market conditions.

Keywords: COVID-19; Cryptocurrencies; Cryptocurrency uncertainty index; Dynamic connectedness; Policy and price uncertainty; Quantile-VAR.