Impact of Russia-Ukraine war attention on cryptocurrency: Evidence from quantile dependence analysis
The recent significant decline in cryptocurrency values prompts an exploration into its underlying causes. This study investigates the influence of public attention towards the Russia-Ukraine War, as indicated by Google Trends, on both cryptocurrencies and equities. Employing quantile cross-spectral analysis and utilizing daily data from February 24, 2022, to June 21, 2022, we discern that the relationship between War attention and cryptocurrencies varies depending on investment horizon and market conditions. In bearish and normal markets, heightened War attention leads to negative effects on all cryptocurrencies in the short term, whereas in bullish markets, the impact is positive. This pattern aligns with cryptocurrency investors seeking liquidity in response to War-related attention, potentially explaining recent sell-offs by large holders.
Introduction
This investigation aims to ascertain whether the Ukraine-Russian war plays a significant role in the recent downward trajectory of cryptocurrency prices. The period spanning from November 2021 to June 2017 witnessed a precipitous 70% decline in the cryptocurrency market's overall value.1 While some attribute this plummet to a collective reaction driven by an abrupt shift in investor sentiment (Karaa et al., 2022), this explanation appears insufficient given the magnitude of the decline. It raises the question of whether global uncertainties, particularly those associated with significant geopolitical events, exert a discernible influence on cryptocurrencies.
The notion that global uncertainties and events like the Russia-Ukraine War impact cryptocurrencies is plausible. This hypothesis is further bolstered by Russia's ranking in global corruption indices and cryptocurrencies' association with illicit financial activities. Moreover, the increased prevalence of cryptocurrencies in Russia, with up to 12% of the population owning them, underscores their significance in the country's financial landscape.
This study delves into the co-movements of cryptocurrencies concerning public attention towards the Russian military involvement in Ukraine. While previous research has explored the reactions of equity markets to this conflict, its impact on cryptocurrencies remains underexamined. The potential link between the War, the use of cryptocurrencies for illicit activities, and the financial networks of Russian oligarchs warrants investigation, especially in the context of Western sanctions.
The recent fall in cryptocurrency values may be attributed to a combination of factors, including investors seeking additional liquidity in fiat currencies and reactions to selling by influential cryptocurrency holders. This study aims to shed light on the strong correlations between public attention towards the Russia-Ukraine War and declines in cryptocurrency values, thereby stimulating further research in this area.
Methodology
To investigate the relationship between public attention to the Russia-Ukraine War and cryptocurrencies, we employ a novel econometric framework known as quantile coherency analysis. This approach allows us to explore the dynamics of time-frequency dependence among War attention, cryptocurrencies, and G7 stock returns. By examining linkages at different time horizons and considering extreme quantiles, we gain valuable insights for investors.
Conclusion
Our findings indicate a nuanced relationship between public attention to the Russia-Ukraine War and cryptocurrencies, contingent on investment horizon and market conditions. In the short term, War attention exerts a negative influence on all cryptocurrencies in both bearish and normal markets, while in bullish markets, the effect is positive. These results suggest that cryptocurrency investors, particularly those with shorter investment horizons, respond to heightened War attention by seeking liquidity. This study contributes to the ongoing discourse on the impact of geopolitical events on financial markets, providing valuable insights for investors navigating these complex dynamics.
Introduction
This investigation aims to ascertain whether the Ukraine-Russian war plays a significant role in the recent downward trajectory of cryptocurrency prices. The period spanning from November 2021 to June 2017 witnessed a precipitous 70% decline in the cryptocurrency market's overall value.1 While some attribute this plummet to a collective reaction driven by an abrupt shift in investor sentiment (Karaa et al., 2022), this explanation appears insufficient given the magnitude of the decline. It raises the question of whether global uncertainties, particularly those associated with significant geopolitical events, exert a discernible influence on cryptocurrencies.
The notion that global uncertainties and events like the Russia-Ukraine War impact cryptocurrencies is plausible. This hypothesis is further bolstered by Russia's ranking in global corruption indices and cryptocurrencies' association with illicit financial activities. Moreover, the increased prevalence of cryptocurrencies in Russia, with up to 12% of the population owning them, underscores their significance in the country's financial landscape.
This study delves into the co-movements of cryptocurrencies concerning public attention towards the Russian military involvement in Ukraine. While previous research has explored the reactions of equity markets to this conflict, its impact on cryptocurrencies remains underexamined. The potential link between the War, the use of cryptocurrencies for illicit activities, and the financial networks of Russian oligarchs warrants investigation, especially in the context of Western sanctions.
The recent fall in cryptocurrency values may be attributed to a combination of factors, including investors seeking additional liquidity in fiat currencies and reactions to selling by influential cryptocurrency holders. This study aims to shed light on the strong correlations between public attention towards the Russia-Ukraine War and declines in cryptocurrency values, thereby stimulating further research in this area.
Methodology
To investigate the relationship between public attention to the Russia-Ukraine War and cryptocurrencies, we employ a novel econometric framework known as quantile coherency analysis. This approach allows us to explore the dynamics of time-frequency dependence among War attention, cryptocurrencies, and G7 stock returns. By examining linkages at different time horizons and considering extreme quantiles, we gain valuable insights for investors.
Conclusion
Our findings indicate a nuanced relationship between public attention to the Russia-Ukraine War and cryptocurrencies, contingent on investment horizon and market conditions. In the short term, War attention exerts a negative influence on all cryptocurrencies in both bearish and normal markets, while in bullish markets, the effect is positive. These results suggest that cryptocurrency investors, particularly those with shorter investment horizons, respond to heightened War attention by seeking liquidity. This study contributes to the ongoing discourse on the impact of geopolitical events on financial markets, providing valuable insights for investors navigating these complex dynamics.
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