Regime-Specific interdependencies in cryptocurrency markets: A high-frequency GMM-VAR approach

Abstract

In this study, we examined the regime-dependent dynamics and interrelationships among major cryptocurrencies, Bitcoin (BTC), Ethereum (ETH), and Monero (XMR), using high-frequency one-minute data from January 2020 to April 2025. To capture the presence of latent structural shifts without assuming Markovian transitions, we employed a Gaussian Mixture Model (GMM), which flexibly clustered distributions into two, empirically distinct regimes. Regime-specific Vector Autoregressive (VAR) models were then estimated to analyze interdependencies, spillovers, and shock transmission mechanisms across these digital assets. In the calm regime, the return dynamics were primarily self-driven, with limited cross-asset responses. Conversely, the volatile regime exhibited stronger and more persistent interlinkages, with BTC consistently acting as the principal transmitter of shocks to ETH and XMR, while ETH acts as a secondary transmitter, whereas XMR remains largely a risk recipient, absorbing external shocks with limited feedback into the system. These findings were corroborated through impulse response functions and forecast error variance decompositions, which consistently revealed asymmetric interdependence structures across the regimes. The Granger causality indicated more stable and statistically significant causal relationships in the calm regime than in the volatile regime. Furthermore, the Bai-Perron structural break tests confirmed the absence of significant deterministic breaks in the return series, reinforcing the validity of the GMM-based regime identification. These findings have practical implications for investors, regulators, and risk managers when modeling contagion and developing risk management strategies in cryptocurrency markets, especially during periods of heightened volatility.