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Effect of bifurcation on the interaction between Bitcoin and Litecoin

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  • Tu, Zhiyong
  • Xue, Changyong

Abstract

This paper studied the effect of the bifurcation of Bitcoin on its interactions with its substitute, Litecoin. We applied the Granger causality test and a BEKK-MGARCH model to investigate the return and volatility spillovers between Bitcoin and Litecoin during the period 2013–2018. We divided this period by the date of August 1, 2017, on which Bitcoin underwent its initial bifurcation. In general, our empirical results show that return and volatility spillovers run in one direction only, i.e., from Bitcoin to Litecoin, before the bifurcation, with the direction of shock transmission being reversed after the bifurcation. We conclude that bifurcation has markedly weakened the market position and pricing influence of Bitcoin within cryptocurrency markets. Since bifurcation is convenient for nearly any cryptocurrency, it will likely continue to pose a risk to the cryptocurrency market as a whole.

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  • Tu, Zhiyong & Xue, Changyong, 2019. "Effect of bifurcation on the interaction between Bitcoin and Litecoin," Finance Research Letters, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:finlet:v:31:y:2019:i:c:s1544612318306275
    DOI: 10.1016/j.frl.2018.12.010
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    More about this item

    Keywords

    Cryptocurrency; Bitcoin; bifurcation; Litecoin; Spillover;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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