The asymmetric effects of upside and downside risks in cryptocurrency markets: Insights from the LUNA and FTX crises

Unlike conventional studies on the risk dynamics of cryptocurrency markets, this paper innovatively distinguishes between good and bad volatility to more accurately measure the market's risk spillover under both good and bad shocks. By constructing a network of cryptocurrency market risk spillovers, we delve into the asymmetry between good and bad volatility in the context of risk spillover. Specifically, this study focuses on the risk spillover characteristics during the LUNA and the FTX crises, aiming to uncover the unique manifestations of market risk during this tumultuous period. We find that, overall, the risk spillover from bad volatility tends to exceed that from good volatility. However, at higher levels of risk spillover, the spillovers from good volatility significantly exceed those from bad ones. This observation substantiates the notion that spillovers from good volatility are more likely to accumulate risks, potentially triggering a crisis. This research not only aids investors in better understanding the risk structure of the cryptocurrency market but also provides regulatory bodies with a reference for formulating risk control strategies, thereby holding significant implications for the healthy development of the cryptocurrency market.