What is it about?
Many studies have associated cryptocurrencies with bubbles, especially during stressed market conditions such as the recent outbreak of the second wave of COVID-19. Although the majority of studies have focused on bitcoin, we investigate the predictability of bubble formation in the cryptocurrency market by using the log-periodic power law (LPPL) and we uncover some important stylized facts of this market. Our sample consists of data for a selection of 15 cryptocurrencies for the period between 1st January 2021 to 1st September 2021 which coincides with the second wave of COVID-19. We analyze eighty-six speculative bubbles, and we find that the cryptocurrency market has three times higher drawdown over equities during stressed market conditions.
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Why is it important?
The contribution of our research to the existing literature is threefold. To begin with, this is the first attempt to investigate a common factor across the market crashes during the second wave of COVID-19 with the use of Filimonov’s and Sornette’s (2013) modified LPPL. Secondly, we differentiate from previous studies by testing the robustness of the LPPL following the reformulated version of the LPPL calibrations proposed by Filimonov and Sornette. Thirdly, we analyze 15 cryptocurrencies which represent 80% of the cryptocurrencies’ universe market capitalization.
Perspectives
The main objective of our initiative is to answer the following research questions: a) Are equity and cryptocurrency crashes similar in pattern as well as in extent? b) Is there a common pattern for all the crypto universe (for the selected sample of cryptocurrencies representing 80% of the total universe in terms of market capitalization) during COVID-19 second wave? c) Are crypto bubbles have higher intra-day volatility over equity bubbles?
Dr Spyros Papathanasiou
National and Kapodistrian University of Athens
Read the Original
This page is a summary of: Did cryptocurrencies exhibit log‐periodic power law signature during the second wave of COVID‐19?, Economic Notes, September 2022, Wiley,
DOI: 10.1111/ecno.12207.
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