Entropy (Basel). 2021 Oct 22;23(11). doi: 10.3390/e23111386.

Is Bitcoin Still a King? Relationships between Prices, Volatility and Liquidity of Cryptocurrencies during the Pandemic.

Entropy (Basel, Switzerland)

Barbara Będowska-Sójka, Agata Kliber, Aleksandra Rutkowska

PMID: 34828084 PMCID: PMC8624574 DOI: 10.3390/e23111386

Abstract

We try to establish the commonalities and leadership in the cryptocurrency markets by examining the mutual information and lead-lag relationships between Bitcoin and other cryptocurrencies from January 2019 to June 2021. We examine the transfer entropy between volatility and liquidity of seven highly capitalized cryptocurrencies in order to determine the potential direction of information flow. We find that cryptocurrencies are strongly interrelated in returns and volatility but less in liquidity. We show that smaller and younger cryptocurrencies (such as Ripple's XRP or Litecoin) have started to affect the returns of Bitcoin since the beginning of the pandemic. Regarding liquidity, the results of the dynamic time warping algorithm also suggest that the position of Monero has increased. Those outcomes suggest the gradual increase in the role of privacy-oriented cryptocurrencies.

Keywords: cryptocurrencies; dynamic time warping; mutual information; transfer entropy

Publication Types

• Journal Article

Grant support

• 004/RID/2018/19/Ministry of Science and Higher Education
• UMO-2017/25/B/HS4/01546/National Science Center