Volatility Transmission in Digital Assets: Ethereum’s Rising Influence

Abstract

Within the framework of high-frequency volatility modeling, this study investigates the realized volatility spillover dynamics across major cryptocurrencies over an extended period of time. Using a Time-Varying Parameter Vector Autoregression (TVP-VAR) model of the realized volatility (RV), this work constructs the Total Connectedness Index (TCI) and Pairwise Connectedness Index (PCI) to measure the intensity and direction of realized volatility transmission within this digital asset network. Our findings reveal a consistently high level of spillovers among these leading cryptocurrencies, with notable peaks during periods of global market turbulence. Notably, Ethereum emerges as the most influential volatility transmitter, challenging the traditional view of Bitcoin as a primary driver of volatility spillovers. This reflects Ethereum’s pivotal role in decentralized finance (DeFi), decentralized applications (dApps), and its growing trading activity, suggesting a shifting influence in the increasingly diversified cryptocurrency ecosystem.