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Competition of noise and collectivity in global cryptocurrency trading route to a self-contained market

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Document pages: 13 pages

Abstract: Cross-correlations in fluctuations of the daily exchange rates within thebasket of the 100 highest-capitalization cryptocurrencies over the periodOctober 1, 2015, through March 31, 2019, are studied. The correspondingdynamics predominantly involve one leading eigenvalue of the correlationmatrix, while the others largely coincide with those of Wishart randommatrices. However, the magnitude of the principal eigenvalue, and thus thedegree of collectivity, strongly depends on which cryptocurrency is used as abase. It is largest when the base is the most peripheral cryptocurrency; whenmore significant ones are taken into consideration, its magnitudesystematically decreases, nevertheless preserving a sizable gap with respect tothe random bulk, which in turn indicates that the organization of correlationsbecomes more heterogeneous. This finding provides a criterion for recognizingwhich currencies or cryptocurrencies play a dominant role in the globalcrypto-market. The present study shows that over the period underconsideration, the Bitcoin (BTC) predominates, hallmarking exchange ratedynamics at least as influential as the US dollar. The BTC started dominatingaround the year 2017, while further cryptocurrencies, like the Ethereum (ETH)and even Ripple (XRP), assumed similar trends. At the same time, the USD, anoriginal value determinant for the cryptocurrency market, became increasinglydisconnected, its related characteristics eventually approaching those of afictitious currency. These results are strong indicators of incipientindependence of the global cryptocurrency market, delineating a self-containedtrade resembling the Forex.

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