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Multiscale Evidence of Crypto Market Decoupling from Forex

Article arXiv papers · Author: Stanisław Drożdż et al.
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Summary

This study examines whether cryptocurrency exchange rates moved independently of traditional foreign exchange rates. Using high-frequency Kraken records from July 2016 through December 2018, it analyzes multiscale cross-correlations among Bitcoin, Ethereum, the euro, and the U.S. dollar.

The reported scaling behavior of crypto exchange-rate fluctuations became more similar to Forex patterns over the study period. Bitcoin-to-Ethereum returns showed increasing resemblance to mature-market behavior, and the direct BTC/ETH rate displayed multifractality. The applied cross-correlation measures found no noticeable relationship between BTC/ETH and EUR/USD dynamics, which the authors interpret as evidence of emerging decoupling. These findings are limited to the currencies, venue, period, and measures studied; they do not establish that crypto and Forex are generally independent.

Key ideas

  • The study applies multiscale cross-correlation analysis to high-frequency crypto and Forex data.
  • Crypto exchange-rate scaling characteristics moved closer to those observed in Forex during the sample period.
  • The BTC/ETH rate showed multifractality, reflected in a broad singularity spectrum.
  • The tested measures found no noticeable cross-correlation between BTC/ETH and EUR/USD dynamics.
  • The evidence suggests possible decoupling, but is specific to the sampled period and measures.

Tags

CryptoForexStatisticsHigh-frequency trading
Full text
# Signatures of crypto-currency market decoupling from the Forex


# Signatures of crypto-currency market decoupling from the Forex









Based on the high-frequency recordings from Kraken, a cryptocurrency exchange and professional trading platform that aims to bring Bitcoin and other cryptocurrencies into the mainstream, the multiscale cross-correlations involving the Bitcoin (BTC), Ethereum (ETH), Euro (EUR) and US dollar (USD) are studied over the period between July 1, 2016 and December 31, 2018. It is shown that the multiscaling characteristics of the exchange rate fluctuations related to the cryptocurrency market approach those of the Forex. This, in particular, applies to the BTC/ETH exchange rate, whose Hurst exponent by the end of 2018 started approaching the value of 0.5, which is characteristic of the mature world markets. Furthermore, the BTC/ETH direct exchange rate has already developed multifractality, which manifests itself via broad singularity spectra. A particularly significant result is that the measures applied for detecting cross-correlations between the dynamics of the BTC/ETH and EUR/USD exchange rates do not show any noticeable relationships. This may be taken as an indication that the cryptocurrency market has begun decoupling itself from the Forex.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.