Bitcoin connectedness to traditional asset-classes in times of COVID-19

Abstract

In this paper, we analyse the impact of COVID-19 announcements on the volatility spillovers between the Bitcoin cryptocurrency and other leading financial and physical assets including oil, gold, dollar currency prices and stocks. In doing so, we implement the multivariate GJR-GARCH model under dynamic conditional correlations (DCC) and multiple and partial wavelets to hourly data starting from the onset of the COVID-19 health crisis. Our results reveal positive and weak dependence of Bitcoin to all asset classes except the dollar currency price during the COVID-19 pandemic. The occurrence of the recent health crisis seems to strengthen the Bitcoin connectedness. Furthermore, the COVID-19 related announcements are shown to increase the power of the Bitcoin correlation and have no significant effect on the correlation volatility during the COVID-19 period. The wavelet analysis reveals consistent results and a substantially varying pattern of Bitcoin-asset class correlations over time-scales and investment horizons. Our intraday study has several prominent implications for asset-class managers, regulators and digital currency traders, and paves the way for future research.