Complex and Multifaceted Nature of Cryptocurrency Markets: A Study to Understand its Time-Varying Volatility Dynamics

Abstract

Decentralised Finance (DeFi) provides a new way to perform complex financial transactions by exploiting blockchain's ability to maintain a decentralised ledger of transactions without being constrained by centralised systems or human intermediaries. DeFi provides alternative financial instruments that might lessen portfolio risk, especially given the erratic state of the financial markets today. This study analyses the association between the year of the coin in which it was introduced and the market capitalisation of the respective companies. Furthermore, the study also tries to understand the volatility associated with cryptocurrencies using EGARCH & GJR-GARCH models. The results reveal that market capitalisation is not similar for all three stages of the age of cryptocurrency. Also, negative news tends to impact Bitcoin more than positive news, and the volatility is persistent and long-lasting. Ethereum, BNB & Solana see more volatility from absolute past shocks; however, Tether exhibits low but persistent volatility as a stablecoin.