Determinants of Ethereum Return: Insights from Bitcoin, Investor Sentiment, and Financial Markets

Abstract

The study explores the spillover effect on Ethereum – one of the leading cryptocurrencies – stemming from key variables in the domains of cryptocurrencies, investor sentiment, and traditional financial markets. This paper is the first to analyze the influence of such dominant representatives from diverse, external fields on cryptocurrency. We select bitcoin, the Fear and Greed index, the Standard and Poor’s 500 index and the United States Dollar to Euro Exchange Rate as representatives to investigate the spillover effect on Ethereum. Utilizing linear regression models and vector autoregressive (VAR) models, we find strong correlations between Ethereum’s return and that of Bitcoin’s, along with investor sentiment. However, the influence of financial market variables on Ethereum are found to be virtually static and negligible. This research offers valuable insights to those seeking to forecast or manipulate crypto market movement through analyzing the complex interplay between these variables and Ethereum.