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The linkage between Bitcoin and foreign exchanges in developed and emerging markets

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  • Ahmed BenSaïda

    (University of Sousse
    Effat University)

Abstract

This study investigates the connectedness between Bitcoin and fiat currencies in two groups of countries: the developed G7 and the emerging BRICS. The methodology adopts the regular (R)-vine copula and compares it with two benchmark models: the multivariate t copula and the dynamic conditional correlation (DCC) GARCH model. Moreover, this study examines whether the Bitcoin meltdown of 2013, selloff of 2018, COVID-19 pandemic, 2021 crash, and the Russia-Ukraine conflict impact the linkage with conventional currencies. The results indicate that for both currency baskets, R-vine beats the benchmark models. Hence, the dependence is better modeled by providing sufficient information on the shock transmission path. Furthermore, the cross-market linkage slightly increases during the Bitcoin crashes, and reaches significant levels during the 2021 and 2022 crises, which may indicate the end of market isolation of the virtual currency.

Suggested Citation

  • Ahmed BenSaïda, 2023. "The linkage between Bitcoin and foreign exchanges in developed and emerging markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-27, December.
    • Handle: RePEc:spr:fininn:v:9:y:2023:i:1:d:10.1186_s40854-023-00454-w
    DOI: 10.1186/s40854-023-00454-w
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    More about this item

    Keywords

    Cryptocurrency; Fiat currency; Bitcoin crashes; Market integration;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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